FCA interim report ruffles P2P feathers

The Financial Conduct Authority’s recent Interim Feedback report has certainly ruffled some feathers. Its publication prompted emotive headlines to appear like ‘FCA to crackdown on P2P lenders’ (Guardian) and ‘FCA launches crackdown on crowdfunding’ (Money Observer), which may have served to grab readers’ attention, but in reality seem a little wide of the mark.

Sure, the report sets out some areas of concern. As the P2P market has evolved some platforms have been pushing the boundaries of the interim permissions that many have been working under. And without question there are areas of possible confusion for investors (who must never, ever be referred to as savers), but it doesn’t follow that the entire Altfi revolution has been discredited just because the rules have to be tightened for an industry that is growing like Topsy.

That the FCA itself bunches together equity crowdfunding with debt crowdlending under the common label of crowdfunding doesn’t help, when they really are very different types of investment and risk. Or, that the authors use terms like ‘regulation arbitrage’, which apparently means that some platforms appear to operate in similar fashion to either banks or investment managers, but are not bound by the strict rules that govern either of those two professions. Some clarity and simplicity from all parties would be welcome.

What we do know from the report is that the new rules covering the ‘crowdfunding’ sector will not be published until next summer. What we don’t know is what it means for some of the platforms – including the big three of Funding Circle, Zopa and Ratesetter – who are held in a queue waiting for full authorisation. Does the timing of the new rules mean that none of them will be allowed to pass through the gate until the mid-2017?

One organisation watching from the sidelines is Resolution Compliance, which is authorised and regulated by the FCA and which specialises in providing ‘Appointed Representative’ status to crowdfunding platforms that are just starting up. So far, it has helped ‘incubate’ over 30 firms in this way, a number of whom – including Crowdstacker, Crowd2Fund, Syndicate Room and Abundance – have gone on to secure their own full authorisation from the FCA.

Interestingly, although Resolution has Innovative Finance ISA Manager permission that it could grant to its appointed representatives, it has not done so “because the rules are not clear enough – there is too much ambiguity.”

Commenting on the latest FCA reports, Resolution Compliance founder and CEO James Dingwall said: “The FCA are doing a good job based on what they’ve been left with.”
“Many firms we talk to don’t have the ability to meet the threshold of requirements and many business models simply do not work. Some don’t have the money or experience. We have to be very selective, which is why we have only granted appointed representative status to 30 or so out of the 200 who have approached us. We apply our own strict appropriateness test.”

“As regards the future, I don’t think the IFA community is going to support the P2P sector until they can get the Professional Indemnity Insurance cover. On the other hand, I think SIPP providers could open up the market considerably.”

Food for thought.