U.K. takes closer look at crowdfunding laws
This week Andrew Tyrie, chairman of the Treasury Committee in Britain's parliament, announced that he asked the Bank of England and the Financial Conduct Authority (FCA) to check if more protections were needed for consumers around investing in crowdfunding projects, specifically ones that offer loans.
His questions come after the U.S. Dept of Justice opened an inquiry into Lending Club Corp earlier in May. A probe found that the company had falsified documentation when selling a package of loans, according to Reuters.
Tyrie is asking broader questions about whether or not platforms need more capital to withstand downturns, noting the responsibility lies for ensuring accurate information is provided to potential investors through crowdfunding platforms, and the FCA’s assessment of consumer understanding of the level of risk associated with investment opportunities offered through such platforms.
His letter to Tracey McDermott, Acting Chief Executive of the FCA, also asks these two questions:
Are sufficient incentives placed on crowdfunding platforms accurately to assess the creditworthiness of borrowers and firms seeking investment through crowdfunding platforms?
To date, what impact has the growth of crowdfunding made on competition within the financial sector and what is the likely impact should the growth continue?
Other failures in the crowdfunding market have led U.K. financial leaders to question what provisions are in place for protecting both investors and consumers. In April, The Times UK reported that Rebus, a claims management company raising money through Crowdcube, failed to divulge the scale of its financial problems to investors. Other companies using Crowdcube have come under fire for their funding practices and negligence when it comes to informing investors, and with Crowdcube as Britain’s biggest crowdfunding platform, according to Business Insider, these issues put its business practices in the hot seat.
Will Tyrie’s questions spur more regulation of a market that is still getting its sea legs in the U.K.? While crowdfunding itself isn’t new, it is an industry making healthy headway. It remains to be seen how close of a look the U.K.’s federal regulators will take into protecting investors from these fallouts.