Crowdfunders may have to comply with banking regulations

By Madhvi Mavadiya | 26 October 2015

Last week it was reported that alternative financing providers may have to comply with the same rules and regulations that banks have to adhere to, according to what Britain’s financial watchdog has told MPs.

CityAM says that the chairman of the Financial Conduct Authority, John Griffith-Jones in conversation with the Treasury Select Committee said that due to the fact that crowdfunding and peer-to-peer lending is a growing business, they will have to behave more like banks and will need to in turn, comply with the same regulations.

Griffith-Jones highlights that this is an important move in the right direction as risk needs to be effectively dealt with. “While one wants to encourage alternative sources of lending, one doesn’t want to open up risk,” Griffith-Jones says, according to CityAM.

He continues to say that “sooner or later these platforms will tend to offer packages rather than lending to individuals. At that point, they become awfully like a bank, and I think it’s very important for the regulator not to allow regulatory arbitrage in the system.”

CityAM also mentions how the chairman is on the ball on this subject, which is constantly being reviewed, but is currently questioning when the right time to intervene would be, as peer-to-peer lending and crowdfunding gain popularity.

Since the financial crisis, these alternative financing methods have picked up the slack of trust that was lost from the more traditional lenders, who were not permitted to lend vast amounts.

These modern lending sites are currently facilitating transactions between a single borrower and a single lender, as CityAM explains, but the FCA are predicting more of a move towards investment in a portfolio style, where lenders lend to more than one borrower and pool their risk.

At the moment, peer-to-peer lenders only account for a small amount of the UK’s lending and are regulated but not at the same level as retail banks, but this could be subject to change in the near future. 

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