UK watchdog proposes tougher rules for peer-to-peer lending

LONDON (Reuters) - Britain’s markets watchdog proposed toughening up rules on Friday for loans offered by crowdfunding platforms to give consumers clear and accurate information and ensure they understand the risks.

While investment-based crowdfunding offers consumers shares in businesses, loan-based crowdfunding or peer-to-peer lending offers consumers interest and capital repayments over time.

Both must be licensed by the Financial Conduct Authority (FCA) and the changes being proposed are largely to bring the loan-based sector in line with existing tougher regulation for investment-based crowdfunders.

“We are largely content that the regulatory framework in place for investment-based crowdfunding platforms is adequate,” the FCA said.

In a 156-page review of the loan-based sector, the watchdog said, however, that it found poor practice by some online platforms, such as unsuitable products and customers not being treated properly.

It proposed more information about investments, charges and risks.

“When a platform advertises a target rate of return, we want that target rate to be achievable, and for investors to understand and be fairly remunerated for the risks they are exposed to,” the FCA said.

It is also proposing more explicit requirements on what sort of systems and controls platforms must have to support the outcomes for investors they are advertising.

Investors should also be adequately remunerated for the risk they are taking, and market restrictions for investment-based crowdfunding platforms should be extended to loan-based platforms.

Funding Circle, a leading loan-based crowdfunder, said it had campaigned for just such proportionate regulation.

“We welcome today’s review as we believe it sets out to do that, and we look forward to continuing to work together to offer alternative and transparent investment opportunities for investors, and access to finance for small businesses,” said James Meekings, co-founder and UK managing director of Funding Circle.

RateSetter, one of Britain’s three largest peer-to-peer lenders, said the clearer the regulation, the better chance to compete with banks.

“I believe peer-to-peer lending will become a part of every investor’s diversified portfolio and the proposals from the FCA do not change that belief,” Rhydian Lewis, founder and chief executive officer of RateSetter said.

The FCA’s proposed rule changes came in a long-awaited response to a December 2016 study of the sector’s regulation that came into force in 2014.

Reporting by Huw Jones in London and additonal reporting by Gaurika Juneja in Bengaluru; Editing by Emma Rumney, Elaine Hardcastle and Arun Koyyur