The FCA has opened a new consultation on crowdfunding on new rules for loan-based crowdfunding platforms after seeing “poor practice.”

The FCA says the changes it has proposed are designed to address the ways in which the loan-based crowdfunding model has developed since it last reviewed the sector in December 2016.

The regulator has observed the variety of loan-based crowdfunding business models, some of which it says “have become increasingly complex.”

Based on its findings the FCA has asked for responses to a number of specific proposals to change the rules for loan-based firms which cover:

• Proposals to ensure investors receive clear and accurate information about a potential investment and understand the risks involved
• Ensure investors are adequately remunerated for the risk they are taking
• Transparent and robust systems for assessing the risk, value and price of loans, and fair/transparent charges to investors
• Promote good governance and orderly business practices
• Proposals to extend existing marketing restrictions for investment-based crowdfunding platforms to loan-based platforms

In its December 2016 statement, the FCA also vowed to address a potential “gap” in protections for customers buying a mortgage or taking out a home finance product through loan-based crowdfunding.

The regulator is now proposing to apply rules which would normally apply to home finance providers, to P2P platforms where at least one of the investors is not an authorised home finance provider.

The FCA says it has “observed some poor practice by some firms in the crowdfunding sector, particularly among loan-based platforms.

“This has arisen as a result of both poor business practice as well as risks around certain business models.

“Proposals in this consultation seek to improve standards in the sector but in a way that leaves scope for further innovation.”

Christopher Woolard, executive director of strategy and competition at the FCA, said: “When we introduced new rules for crowdfunding, we said we’d review the market as it developed.

“We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals but it’s essential that regulation stays up to date as markets develop.

“The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections.”   

The FCA is asking for responses to the consultation by 27 October before publishing rules in a Policy Statement later this year.