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A new regulatory regime for lending to crowdfunding P2P platforms in the UK

08 Aug

A new regulatory regime for lending to crowdfunding P2P platforms in the UK

Recently, British legislation regarding crowdfunding platforms (based on investment or lending) has been amended. Therefore, if you plan to open a similar resource in the UK in the future, we recommend that you familiarize yourself with these amendments.

What changes have been made?

Basically, the application of marketing restrictions that extended to these resources was expanded. Thanks to these innovations, foreign entrepreneurs no longer need to worry about the difficulties that await them in the P2P sector. This is due to the fact that this sector, after amending the relevant legislation, acquired similar features in the investment regime.

The new rules will enter into force in December 2019. But foreign entrepreneurs can now register a crowdfunding platform that will comply with the new legislation.

Marketing restrictions

The regulatory body introduced restrictive measures for crowdfunding platforms, which somewhat complicate access to some investment markets. An interesting detail is that the resources involved in advertising their proposals will be able to carry out a dialogue only with a retail investor (or several). Moreover, the investor is required to confirm that the size of their investments will not exceed a tenth of his investment portfolio.

This limit can significantly affect the difficulty of launching a P2P crowdfunding platform in the United Kingdom if you are targeting a retail investor. Therefore, you need to think in advance about how to use these limits.

Management of risks

Thanks to the focus of new rules on structuring relationships with borrowers, it was possible to significantly increase the degree of responsibility of crowdfunding platforms.

To launch this resource, you also need to develop effective mechanisms, as well as create a risk control policy. This includes internal audit, risk management and compliance.

New P2P crowdfunding platform liquidation process

Changes to this procedure were made to streamline the chaotic liquidation of these resources, which is why many investors risked losing their deposits.

A key responsibility of the platform is timely notification of lenders. Therefore, when registering a resource in the United Kingdom, it is recommended to prepare additional financial resources in advance, which will be sufficient to cover the costs of liquidation (as well as to pay for other operations related to the implementation of this procedure).

Disclosure Requirements

Crowdfunding resources are committed to providing investors with all the necessary data for making various decisions. Under the new rules, when registering these resources in the United Kingdom, investors receive guarantees of the veracity of all the information transmitted to them before signing any contracts.

The regulator requires P2P crowdfunding platforms to disclose to investors the following information:

  • What role does the platform play?
  • What are the mechanisms for eliminating a resource?
  • Information regarding investments.

Total

All of the above innovations were aimed at improving consumer protection and solving existing problems (while not worrying about the development of P2P platforms).

The key difficulty of P2P resources (not including disclosure) will be to ensure that retail limits are 10% on investment. FCA will tighten control over all of the above amendments.

Important! All information in this article is extremely informative, and cannot be regarded as legal advice.

For the necessary advice, contact us at the contacts listed on the site.

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