On Tuesday, June 4, Britain’s Financial Conduct Authority (FCA) announced that crowdfunding platforms (also known as peer-to-peer, or P2P, lending platforms) will have to follow more rules and regulations than they did previously. The beefed-up regulations and demand for increased transparency from platforms come in the wake of the disastrous, sudden closing of the now-defunct platform Lendy.
Starting in December 2019, small business crowdfunding and peer lending platforms throughout the country will be under more intense scrutiny by the FCA and subject to possible legal action if they don’t follow stricter regulations. Read on to learn more about the FCA’s announcement, the new rules, and how crowdfunding platforms might be affected.
The Financial Conduct Authority’s New Rules
The FCA’s announcement on Tuesday, which included the publication of new rules that will go into effect later this year, was prompted in part by the recent debacle involving crowdfunding platform Lendy. Lendy funded small British businesses by attracting a variety of individual, low-impact investors for each project. But the platform crashed and burned in grand style, highlighting the need for more regulations around crowdfunding going forward.
The new rules, which involve transparency and consumer protections, are meant to protect donors, fundraisers, and companies alike.
How Will Crowdfunders Be Affected By the FCA’s Regulations?
To avoid a Lendy-style demise, crowdfunding platforms will be required to be more transparent about their internal vetting standards. They will also have to have specific plans for how they will close down in an organized manner, refund donors, and protect small businesses, should the platform fail. They must also provide more detailed information to potential investors, and question them about their current level of knowledge to ensure that small businesses will be able to use crowdsourced funds to build sustainable organizations for (hopefully) years to come.
Although crowdfunding platforms already need to be approved by the FCA in Britain, the organization’s hope is that the tighter regulations will keep things running more smoothly across the P2P lending landscape. The shifts in recent years have already resulted in involvement from more large-scale, institutional investors rather than individual investors alone.