Loan Based Crowdfunding – CP 16/4

Crowd-funding is a way in which some people and businesses, including start-ups, raise money by using online portals (known as crowd-funding platforms) to finance their activities. Depending on the scope and model of the business, crowd-funding activity could be subject to FCA regulation, if it does not fall within the exempted category. Firms undertaking or proposing to undertake such activities should seek legal advice if they are unsure of the regulatory status of their business.


The FCA have published a consultation paper in January 2016, CP16/4, which focuses on the regulated loan-based crowd-funding sector and consults on rules to simplify client money requirements for firms that operate electronic systems in relation to lending (P2P platforms) and hold both regulated and unregulated client money accounts. Currently, an investor’s money held by a firm in relation to P2P agreements (money to be lent or received in repayments) must be segregated from the firm’s own money and any other money, including in relation to unregulated business to business lending (B2B agreements).


FCA have responded to the concerns expressed by some firms operating in this sector that the P2P industry have generally not developed systems to distinguish between money held for the purposes of P2P and for B2B agreements. The FCA is, therefore, proposing to allow firms that hold money in relation to both P2P and B2B agreements to elect to hold both types of monies under Client Assets sourcebook (CASS) 7 if they wish. Firms may then put P2P and B2B monies together, but segregated from the firms’ own money, without breaching CASS 7. The FCA is planning to publish a policy statement containing final rules to clarify the changes in March 2016.