Crowdfunding Seeks Perfect Balance On Security, Yield And Access

The UK government is currently consulting on regulation, NISAs and security for crowdfunded investments

Every day yields new information about the fast-growing crowdfunding market. Witness this recent article in Forbes. “Crowdfunding is a powerful tool for innovation and we shouldn’t be satisfied with a government that wants to hold it back.”

We couldn’t agree more. Fortunately, these opinions belong to a US writer, John Berlau, who is writing about the US market as a guest blogger for Forbes in his capacity as senior fellow for finance and access to capital at the Competitive Enterprise Institute.

The UK government is currently consulting the market on regulation, conduct, and issues such as whether peer-to-peer (P2P) crowdfunded loans can be included as an asset class in New Individual Savings Accounts, which allow for up to £15,000 to be invested free of tax.

Broadly speaking, the lighter touch of the UK authorities has been beneficial to the growth of crowdfunding. But it is really important that these investments provide as much security as possible, without requiring crowdfunders to behave like banks.

Money&Co. takes debentures on the assets of the borrowing companies (see more here about the method, credit analysis and risk). But crowdfunders are not banks, and do not come under the remit of the government-backed Financial Services Compensation Scheme (FSCS).

The Treasury puts it this way in its consultation document: “Investors in peer-to-peer loans are not currently protected by the FSCS. The government and the Financial Conduct Authority (FCA) believe it is important that the regulatory framework for peer-to-peer lending is proportionate, especially while the market is young and growing.

“Bringing peer-to-peer platforms within the remit of the FSCS would impose additional regulatory costs, which may be quite significant. The FCA considers that this would currently be disproportionate, and that the other protections in place provide adequate protection for the market and the risks it carries at present.”

For a comparison between bank deposits and crowdfunded loans (specifically – security, access and yield), click here.

Tags: crowdfunding, FCA


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.