UK regulators asked for views on crowdfunding as 'stronger consumer protection' is mooted

Andrew Tyrie, chair of the Treasury Committee, has asked Tracey McDermott, acting chief executive of the Financial Conduct Authority, and Andrew Bailey, deputy governor of the Bank of England for prudential regulation, about issues such as awareness of risks in crowdfunding, competition in the market and the sector's ability to resist "economic shocks".

In his letter to McDermott (1-page / 72KB PDF), Tyrie asked the FCA to outline where it sees the responsibility lying for "ensuring that accurate information is conveyed to potential investors through crowdfunding platforms" and on whether crowdfunding platforms are sufficiently incentivised to "accurately … assess the creditworthiness of borrowers and firms seeking investment" through their platforms.

Tyrie has also called on the FCA to detail its "assessment of consumers' understanding of the level of risk associated with the investment opportunities offered through crowdfunding platforms" and set out the impact the growth of crowdfunding has had on competition in the financial services market and its likely impact "should the growth continue".

Separately Bailey has been asked (1-page / 62KB PDF) to set out the Prudential Regulation Authority's (PRA's) "assessment of the crowdfunding sector's resilience to potential economic shocks". Tyrie has also asked the PRA to describe "the prudential impact of the financial sector's increased exposure to unsecured loans through crowdfunding platforms" and project the likely impact will be in future "if the current growth rate persists".

In a statement Tyrie said: "Whether and, if so, to what extent investors would benefit from stronger consumer protection now needs careful thought. Poorly informed investors may be left with a false sense of security about the balance of risks versus returns. But greater regulation is not necessarily the answer. If this market can substantially increase competition it may offer benefits to the consumer. It is crucial that the regulator is doing what it can to find the right balance between these risks and opportunities."

"The prudential impact of the financial sector’s increasing exposure to unsecured loans through crowdfunding platforms also warrants closer scrutiny. The sector’s ability to see through an orderly decline should be considered sooner rather than later," he said.