Government regulation to be brought in for peer-to-peer lending in the UK to formalise crowdfunding

Peer-to-peer lending in the UK is set to receive its own tailored regulation after the government announced it would be making the move.

Debt and invoice crowdfunding platforms will be regulated under plans by the government and the Financial Conduct Authority.

In a decision announced at the Peer-to-Peer Finance Policy Conference in London, a new regulatory framework will now be created in an attempt to legitimise crowdfunding and open it up to new markets.

The Conference saw policy makers from the government’s front bench, the Federation of Small Business, the Financial Standards Authority and HM Treasury descend on the offices of enterprise charity Nesta to discuss how best to regulate the peer-to-peer lending market.

The decision comes following a change to the financial service bill, which is currently working its way through parliament, and will mirror the actions being taken by the United States as part of its JOBS Act.

Equity crowdfunding is already regulated, with platform Seedrs the first to receive FSA authorisation.

Speaking to GrowthBusiness, Jeff Lynn, CEO of equity crowdfunding platform Seedrs, says that he is thrilled that the government has decided to put forward a clear regulatory framework for peer-to-peer lending.

‘I think this will be a tremendous boost to the marketplace and encourage a significant increase in debt funding for small businesses and individuals,’ he explains.

‘Regulation, so long as its proportionate, is very much welcome in this space. It protects the integrity of the market, which means more people allocate more capital, which is good for both the providers and recipients of that capital.’

‘Equity crowdfunding is currently regulated, and Seedrs is proud to have been the first equity crowdfunding platform to receive FSA authorisation. I know that Funding Circle, Zopa and RateSetter have wanted to be authorised for quite some time, and with this change in law for peer-to-peer lending.’

The Peer-to-Peer Finance Association has described the government move as a ‘watershed moment’ for peer-to-peer lending.

The Association adds, ‘The Peer-to-Peer Finance Association has provided clarity and protection for consumers and businesses, but we have always strongly believed that introducing proportionate regulation was necessary to enable the sector to continue to flourish.

‘We are committed to working closely with the government and the Financial Conduct Authority over the coming months to build the right framework for our future.’

The Treasury will now aim to get regulation in place to begin enacting it in 2014. It will launch a consultation exercise in 2013 to formulate how the regulation will look, and will then hand control over to the Financial Conduct Authority. Emma Simmonds, policy advisor at HM Treasury and panelist at the conference, says the consultation will welcome participation from crowdfunding platforms and entrepreneurs.

Samir Desai, CEO and co-founder of debt crowdfunding platform Funding Circle comments, ‘We welcome this announcement and look forward to working closely with the government and the Financial Conduct Authority over the coming months to help build a regulatory blueprint.

‘The economy continues to face some very tough times, but peer-to-peer lending has prospered over the last two years and established itself as the credible alternative to the banks.’

More on crowdfunding:

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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