Gillian Roche-Saunders, a partner at the law firm of Bates, Wells & Braithwaite in London, works with many of the largest UK alternative finance platforms in operation. She has been highly engaged with the FCA and crowdfunding / P2P platforms regarding compliance and regulatory approval. Crowdfund Insider spoke with Roche-Saunders this past summer about the forthcoming FCA review where she shared her insight. We reached out to her today for some additional feedback on the just published FCA Interim Report on Crowdfunding.
Roche-Saunders said the FCA has become more cautious with more complex operating structures of platforms.
“Simpler platform models are being favoured because the risks are more easily understood by consumers,” said Roch Saunders. “The conflicts are more easily managed by firms, and they are easier for the FCA to supervise. It is the simpler models of platforms that are being authorised first and the FCA’s paper shows that its concerns about whether the more sophisticated structures are morphing into banks and asset managers remain.”
Roche-Saunders said there was consumer demand for these services and the FCA needs to work with these platforms to allow creative innovation;
“… the industry needs scalable models and consumers want differentiators. The FCA needs to find ways to enable more complexity with disclosures, standards and smarter oversight tools, so that lenders and borrowers can continue to benefit from innovation.”
Roche-Saunders found the timing of the report curious;
“The approach taken to providing the feedback is one of the oddest things. It’s hard to see why the FCA approached it in this way as without the new rules, the feedback isn’t complete enough for the industry to take action on. When you combine that with the fact that have just started to see momentum in the number of platforms finally receiving their full authorisation, it creates mixed messages.”
Her firm quickly published their perspective on the FCA Interim Report. Their feedback is paraphrased below:
- Crowdfunding – For consistency reasons, the FCA is resisting calls to cease referring to P2P lending as loan-based crowdfunding.
- Wind-down plans – Despite the work done back-and-forth between the FCA and P2P platforms this summer over wind-down plans, the FCA remains concerned and will propose more robust rules.
- Speed of change – The FCA’s states that it is concerned about the pace of innovation. As this is quite a departure from the stance from Project Innovate, this may be an indication that the FCA is struggling to effectively supervising the market. No actions are suggested but this is one to watch.
- Vetting of investors – There seems to be some determination for investment-based platforms to have to double check that people really are high net worth or sophisticated, despite the fact that this guidance has to date only been applied to pooled investment structures.
- Innovative Finance ISA (IFISA) – The FCA considers that investors with other ISAs will not understand the risk Innovative Finance ISA, but it is not expecting the IFISA to appeal to people who do not already invest through platforms. Nevertheless, risk disclosures for IFISAs will form part of the proposed rules in 2017.