Bondora, a peer to peer lending platform with pan-European aspirations, has shared their opinion on the regulatory environment in Europe. According to Bondora, “regulating alternative finance is a fraught issue across Europe”. But there is an exception to this rule. The UK, and the Financial Conduct Authority (FCA), has created a “gold standard” of robust regulation.
Bondora is correct. Followers of internet finance widely applaud the approach taken by the British authorities. In a world populated by politicians, driven by polls & egos, and bureaucrats that run for cover at the first sign of controversy, the Brits have managed to get it right. Bondora states;
“[The UK regulatory regime] is widely seen as the gold standard in Europe, and may offer a model for other geographies to create legislative frameworks to support the customers and stakeholders of alternative finance as the industry grows and develops.”
The measured approach exemplified in the UK remains in contrast to the patchwork of rules scattered across the continent. In a world where funds move easily across borders, there is a need for a more harmonized pan-European approach to internet finance. While the intent may exist within the European Commission the execution risks falling short of the mark.
“The alternative finance sector, in many ways, was born out of the loss of consumer trust in mainstream financial institutions during the global economic and financial crises of 2007-10. Practically, the regulations imposed on banks in the aftermath created a capital shortfall which alternative finance was able to address; while emotionally, in a market lacking credibility and trust, alternative finance stepped into the banking space as a more human way to access capital and grow investments.”
Bondora, as do all other industry participants, expects and demands regulations for all forms of new finance. The financial crisis was not the best moment for many nations as politicians rushed to create new rules targeting the financial sector.
Bondora operates in multiple European countries and has been approved by the FCA. The online lender believes the FCA has charted a path – that others should follow;
“…The exception to the rule is the UK, where the Financial Conduct Authority (FCA) implemented their world leading regulations of crowdfunding and alternative finance in April 2014. Under these regulations, platforms are required to demonstrate that they have sufficient financial and non-financial resources to operate, and check customers’ understanding before allowing transactions. Additionally, the regulations ensure that platforms market their investment products only to those who are taking regulated advice, who are classed as ‘high net worth’, or are committed to investing less than 10% of their available funds in this vehicle.”
Bondora is also of the opinion that excessive regulation at the European level may impede industry growth. While there will be bumps along the way, creating an ecosystem that allows an efficient market to develop while providing security to participants is a tall task. Recent headlines regarding TrustBuddy, and its rapid collapse, highlight the risk. But the fault of one should not condemn the many.
The FCA is quite cognizant of the importance of their approach. In contrast to most financial regulators around the globe, the agency’s mandate is to balance investor protection with a requirement to foster competition. This is because it is in the best interest of consumers. Perhaps it is this mission of competition that is the variable in the equation that makes things work?
In 2016, the FCA will complete a full post-implementation review of the crowdfunding market. We hope the results will be as encouraging as the review published earlier this year.
FCA Review from February 2015
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