DP15/6: Possible FCA Handbook changes to reflect the introduction of the Innovative Finance ISA and the regulated activity of advising on peer-to-peer agreements

In this discussion paper, we set out our initial thinking about possible changes to our Handbook to make sure our regulatory approach takes account of two proposed legislative developments that will impact on the regulated loan-based crowdfunding sector.

Why are we seeking views on this?

The Government plans to allow loan-based crowdfunding investments (Article 36H agreements in the Regulated Activities Order (RAO), usually known as peer-to-peer (P2P) agreements) to be included in Individual Savings Accounts (ISAs), in a new component to be known as an Innovative Finance ISA (IFISA). The new IFISA is expected to be available from 6 April 2016.

The Government also plans to amend the RAO to make the provision of advice about loan-based crowdfunding investments that are P2P agreements a regulated activity.

This paper is published on the understanding that legislation will be brought forward and made by Parliament. It will be necessary for us to review our proposed approach once that legislation is made.

Discussion paper 15/6: Possible FCA Handbook changes to reflect the introduction of the Innovative Finance ISA and the regulated activity of advising on peer-to-peer agreements[PDF]

Who is this discussion paper aimed at?

This paper will be of interest to:

  • consumers and consumer organisations
  • financial advisers
  • firms operating loan-based crowdfunding platforms
  • firms that wish to manage IFISAs
  • trade bodies that represent stakeholders in this market
  • compliance consultants and other firms that assist stakeholders.

What is the background to this?

Crowdfunding is a way in which individuals, organisations and businesses, including business start-ups, can raise money through online portals (called crowdfunding platforms) to finance or refinance their activities. Money can be donated or invested in various ways by both individuals and businesses. Some crowdfunding activity is unregulated, some is regulated and some is exempt from regulation. This paper focuses on the regulated loan-based crowdfunding sector.

We generally regulate firms that operate loan-based crowdfunding platforms. Individuals can use these to lend money to other individuals or businesses, or businesses can use them to lend to individuals or other businesses, usually in the hope of receiving a financial return in the form of interest payments, together with repayment of capital. We took on responsibility for regulating loan-based crowdfunding on 1 April 2014.

Our existing rules protect consumers investing in this part of the crowdfunding market by focusing on the provision of information to consumers. This information helps them to assess the risks associated with loan-based crowdfunding, understand who will ultimately borrow the money and make informed decisions. 

In order to take account of the introduction of the IFISA, and anticipating that advising on P2P agreements becomes a regulated activity, we will need to amend certain provisions in the FCA Handbook.

What are the next steps?

We would welcome feedback from firms, industry and consumer groups, and other stakeholders.

Please send us your comments on this discussion paper by 31 December 2015 via the online response form, or by writing to us at the email or postal address on page two of the paper.

When the legislation has been finalised, we will publish a consultation paper seeking feedback on the rules we propose to introduce. In order for the rules to be ready to take effect in April 2016, the consultation period for that paper will be short, so we are publishing this discussion paper to begin the discussion now.

We plan to arrange discussions with stakeholders over the next few months to discuss our high-level plans as set out in this paper. If you want to participate in those discussions, please contact us.

We aim to publish a policy statement making final rules in March 2016.

Want to find out more?

ISA qualifying investments: consultation on including peer-to-peer loans (HM Treasury, July 2015)

CP13/13: The FCA’s regulatory approach to crowdfunding (and similar activities)

PS14/4: The FCA’s regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other media