The FCA has published Consultation Paper 16/4: Loan-based crowdfunding platforms and segregation of client money (CP16/4).

Crowdfunding is a way in which people, organisations and businesses (including business start-ups) can raise money through online portals (known as crowdfunding platforms) to finance or re-finance 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. CP16/4 focuses on the regulated loan-based crowdfunding sector, including peer to peer lending (P2P lending).

In CP16/4 the FCA consults on proposals to simplify its client money requirements for firms that operate PSP platforms and hold both regulated and unregulated client accounts. The FCA’s proposals include:

  • firms to be allowed to hold money in relation to both P2P and business to business (B2B) agreements, to be able to elect to hold all lenders’ monies under CASS 7 if they wish to do so. Firms may then segregate P2P and B2B monies from the firms’ money, together, without breaching the CASS rules and without necessarily needing to distinguish between PSP and B2B agreement monies;
  • if a firm does elect to hold all P2P and B2B monies under CASS 7, then all lender monies in relation to B2B agreements would need to be held as client money under CASS 7 and the firm would not be able to rely on the professional client opt out;
  • existing the FCA restriction against firms taking on full ownership of lender monies under title transfers so that it covers the scope of the election;
  • firms making the proposed election would need to keep a record of the decision and notify the FCA and all their lender clients in writing. On ceasing the election firms would need to notify B2B clients and the FCA;
  • where a firm had made the election, all monies held by the firm in relation to P2P and B2B agreements would be treated as client money and, on insolvency, would be dealt with in accordance with the client money distribution rules at CASS 7A; and
  • FCA guidance will clarify that where a firm operating a loan-based crowdfunding platform holds money that has not yet been invested for a client, this will be client money held under the CASS rules unless the circumstances are such that it could never be invested in relation to a P2P agreement (for example, the firm contracted with the client that its money would only be lent under a B2B agreement).

The deadline for comments on CP16/4 is 11 February 2016. The FCA expects to publish a policy statement with final rules in March 2016.

View CP16/4 Loan-based crowdfunding platforms and segregation of client money, 21 January 2016