UK's FCA and PRA Response in Relation to Peer to Peer Lending

This post comes to us from Clare Hughes, Jo Owens, Chris Busby, and Geraint Thomas, all lawyers at Eversheds.

The House of Commons Treasury Committee has published letters of response from the FCA and PRA to a number of questions regarding crowdfunding regulation that were raised by the Committee in June 2016.

The response from the FCA is set out in a letter dated 16 June 2016 from Tracey McDermott, former FCA acting chief executive.  The FCA answered the specific questions raised by the Committee, stating that as part of its assessment of firms, the FCA assesses whether firms convey information which is clear, fair and not misleading in accordance with financial promotion rules, and whilst the rules allow the peer to peer firms flexibility as to the level of due diligence they are required to carry out on borrowers, firms must make it clear to investors what due diligence has been undertaken.  For investment based crowd-funding, the FCA requires firms to assess the level of knowledge, experience and understanding of the investor where they have not received financial advice.  The FCA are committed to undertaking a post-implementation review of the regime it applies and the FCA will publish a discussion paper and call for input shortly.

The response from the PRA is set out in a letter also dated 16 June 2016 from Andrew Bailey, former PRA chief executive.  The PRA point out that whilst it is not the prudential regulator for crowdfunding platforms, the PRA does monitor any rapid growth of exposure by banks to new asset classes.  In the Bank of England’s (BOE) view the crowdfunding sector is currently too small to be systemically important to the UK financial system, but this judgment may change if the sector continues its high rates of growth, which the BoE will monitor and assess any prudential risk the sector may pose to the firms supervised by the PRA and to the financial system as a whole.