The FCA has published new final rules for loan based (‘peer-to-peer’) and investment based crowdfunding platforms


As of December 2019, a new regulatory regime will be brought in for peer-to-peer and investment-based crowdfunding platforms. This new regime will bring in stricter requirements for risk management frameworks, governance, marketing, wind-down arrangements and prescriptive standards for disclosure to potential investors.


Following a consultation process, the Financial Conduct Authority (FCA) has published the final rules for peer-to-peer and investment-based crowdfunding platforms.

These new regulations aim to build upon the initial rules the FCA implemented after crowdfunding platforms were brought into its regulatory perimeter in 2014.

The FCA identified that there were a number of actual and potential harms in the industry and sought to introduce greater protection for consumers in line with its objective of consumer protection. (S 1C FSMA)

The FCA regulated two types of crowdfunding platforms, both of which were the subject of this review:

  • Loan-based crowdfunding platforms – usually called peer-to-peer or P2P lending platforms. People and institutions use these types of platforms to lend money directly to consumers and businesses, to make financial return from interest payments and the repayment of capital over time.
  • Investment-based crowdfunding platforms – these are platforms where investors can invest directly in businesses by buying investments such as shares, debentures or other debt securities.

Why is the FCA bringing in new rules?

In 2014 the crowdfunding platforms were brought within the FCA’s regulatory perimeter, at this time the FCA set its initial rules for platforms. As this was a new and fast-growing industry, the FCA introduced a regime that was relatively light touch and less detailed. This was done with a view to balance giving investors appropriate protections whilst not preventing growth in the industry.

Following the implementation of these rules, the FCA began a review of the rules in 2016. It was during this review that the FCA found that there had been a proliferation of more complex business models in the industry, which were causing a significant risk of harm to consumers.

The main harms the FCA found were that:

  • Investors may not be given clear or accurate information, leading to the purchase of unsuitable financial products.
  • Investors may not understand or be aware of the true investment risks they are exposed to
  • Investors may not be remunerated fairly for the risks they are taking.
  • Investors may not understand what may happen if the platform administering their loan fails.
  • Investors may not understand the costs they are paying for the services that the platform provides.
  • Investors may pay excessive costs for a platform’s services.

These failings are threatening confidence and participation in the industry. One thing that has been partially to blame for this is the fact that there are various business models which platforms may have:

  • Conduit platforms – These platforms allow investors to choose their investment opportunities and to price their investments. The platform simply presents the investment opportunities and then administers the loan or investment.
  • Pricing platforms – These platforms set the price for investments and present them to investors, who then choose their loan or investment.
  • Discretionary platforms – These platforms price the investments and choose the investors’ portfolio of loans, attempting to meet a target rate. Discretionary platforms are only ever P2P in nature.

These different business models contribute to the potential for harm and create different perceptions for investors. This largely stems from the way in which these different platforms are marketed:

  • Conduit and pricing platforms tend to market the underlying investment, whereas for discretionary platforms, the target rate of return is marketed. The FCA believes that this means that investors using conduit and pricing platforms are more likely to comprehend that their possible return is linked to the underlying investment or loan. Nevertheless, the investor may not understand the true underlying risk and return characteristics of their investment.
  • For discretionary platforms, the investor may get the impression that the investments are actively managed and that their return is linked to the active management of the platform. Investors have no way to assess the ability of a platform to manage their portfolio effectively or to determine whether or not there is a reasonable basis for the advertised rate of return.

What changes are the FCA implementing?

Risk Management Framework

Platforms will now be required to have an appropriate Risk Management Framework in place for their business model, as per SYSC 7.1.3R.

For Discretionary and Pricing platforms, the FCA is introducing prescriptive rules which will mean that, at a minimum, platforms must:

  • Gather sufficient information about the borrower to be able to competently assess the borrower’s credit risk.
  • Categorise borrowers by their credit risk in a systematic and structured way, having taken into account the probability of default and the losses from a default.
  • Set the price of the agreement so it is fair and appropriate and reflects the risk profile of the borrower.

Platforms with more complex business models will be subject to greater risk management requirements.

Where a discretionary platform offers a target rate of return on an actively assembled or managed portfolio, the platform must have a reasonable basis for believing that the advertised rate of return can be achieved. This is because where the platform is actively assembling or managing the portfolio, it is acting as a decision-maker. As such these firms have a greater duty to ensure that their advertised rates are achievable.

Where a platform chooses which loans to offer to an investor, the risk management framework must be designed so that investors are only exposed to loans with an appropriate risk profile.

For Conduit platforms, this new risk management framework does not apply, but the FCA does consider it best practice to consider whether any of the underlying principles apply to their platform.


The FCA is also introducing new requirements designed to make the governance of platforms more robust as the industry has matured. All platforms are now required to have several new functions within the business:

  • A compliance function, which must operate independently at all times, as per SYSC 6.1.3R.
  • An independent risk management function, depending on the nature, scale and complexity of the business, as per SYSC 7.1.6R.
  • An independent internal audit function, depending on the nature, scale and complexity of the business, as per SYSC 6.2.1R.


The FCA has raised concern that investors cannot properly assess the risk and reward a platform offers and the risk exposure they would face if they invested. The FCA is concerned that investors are exposed to assets with a greater level of risk than is appropriate for them. In response to these concerns, the FCA has decided to restrict the ability of platforms to market to certain types of investors.

To this end, the FCA is extending the marketing restriction placed on Interactive Broker platforms, as per COBS 4.7.7R, to cover P2P platforms in order to prevent investors being exposed to risk they cannot tolerate.

These rules regulate the communication of ‘direct offer financial promotion’, which the FCA defines as, an offer by a firm to enter into a controlled agreement with any person who responds or, an invitation to any person who responds to make an offer to the firm to enter into a controlled agreement.

As such P2P platforms are now required to ensure that they only communicate ‘direct offer financial promotions’ to retail clients who:

  • Are certified or self-certified as ‘sophisticated investors’ or are certified as ‘high net worth investors’.
  • Confirm, before a promotion is made, that they will receive regulated investment advice or investment management services from an authorised person in relation to the promoted investment.
  • Are certified as a ‘restricted investor’, meaning that they will not invest more than 10% of their net investible assets in P2P agreements in the 12 months following certification.

In addition to this restriction, platforms must, where no advice is given to a retail client, ensure that they comply with the rules on appropriateness, as per COBS 10 before the client can invest.

Under these rules, platforms must now carry out appropriateness assessments on relevant clients, considering what types of investments the client is familiar with, the nature and frequency of the client’s transactions in designated investments, and the level of education and the profession or former profession of the client.

Wind down arrangements

Following its review of the industry, the FCA had serious concerns about the wind-down arrangements of P2P platforms, feeling that the lack of suitable arrangements was a significant risk to consumer harm. As such the FCA is introducing two key changes that platforms will need to implement.

The first change is that platforms must ensure that they have sufficient arrangements in place to ensure that the P2P agreements facilitated by the platform have a reasonable likelihood of being managed and administered effectively in the event that the platform ceases to function. These plans should be disclosed to investors prior to investing. Any relevant consent which must be sought in relation to these arrangements should be done so prior to investing, for instance where the wind-down arrangements involve the transferring of administration or servicing of agreements to another company, as per SYSC 4.1.8CG.

The second change is that all platforms must have and maintain a ‘P2P resolution manual’, as per SYSC 4.1.8DBR, which must contain information about their operations that would assist in resolving the platform in the event of insolvency, as per SYSC 4.1.8DCR.

Disclosure requirements

Whilst P2P platforms are already required to provide information to consumers about the nature and risk of investments, the FCA has found that often disclosures are still insufficient. As such, the FCA is introducing more granular disclosure requirements for platforms. Some of the most important changes are:

  • Disclosure requirements concerning fee structure.
  • Greater requirements for ongoing disclosures to customers.
  • A new requirement for Discretionary and Pricing platforms to publish an ‘outcomes statement’ within 4 months of the end of the financial year.
  • Greater information must be given to consumers about contingency funds, as the FCA is concerned that many consumers are poorly informed about them and believe them to be a capital guarantee.

When will these reforms take effect?

The FCA has decided that these rules will take effect on the 9th of December 2019. This is because they feel that most of the rule changes build upon existing requirements and best practice.

How can we help?

At Laven our consultants can help identify the actions your firm needs to take to ensure you are compliant with these new regulations, provide training to staff, assist in drafting new policies and procedures that need to be put in place, as well as assisting with your ongoing compliance using our compliance software.

If you would like to know more, get in touch at [email protected] or call +44 (0) 207 838 0010.

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