The FCA has published a Feedback Statement (FS16/13) in relation to its post-implementation review of its crowdfunding rules. The FCA regulates both loan-based and investment-based crowdfunding platforms. The FCA published an interim review of the crowdfunding market in February 2015 and at that stage did not consider that the growth in the market warranted a change in its rules (either to enhance consumer protection or to relax requirements on firms).

Having reviewed feedback received following its call for input in July 2016, the FCA has now decided that the time has come to modify its rules, as there is evidence of investor detriment.

The FCA’s primary focus will be on loan-based crowdfunding platforms. The FCA has identified a risk of regulatory arbitrage in the loan-based sector, and potential for investors to misunderstand the nature of the products offered. In contrast to investment-based crowdfunding, most loan-based crowdfunding firms are operating under interim permissions, rather than being fully authorised. This presents risks to firms’ borrowers and lenders where firms do not meet the standards for authorisation. The FCA now considers it necessary to modify its rules so as to strengthen consumer protections, while continuing to ensure it promotes competition. The FCA plans to consult in early 2017 on proposed rules.

The Feedback Statement can be viewed here.