UK watchdog warns crowdfunders not to act like banks

[LONDON] Britain's loan-based"crowdfunding" platforms and some of their customers could be breaking the law by acting like banks and "accepting deposits", the Financial Conduct Authority (FCA) said on Tuesday.

Crowdfunding or peer-to-peer (P2P) refers to people lending small amounts of money to a platform, which then lends the money to businesses or individuals.

But if the platform is used by a financing business to obtain cash to lend on, this would be "accepting deposits", the legal term for defining banking activity, the FCA said.

Banks face much tougher regulation than crowdfunders, such as strict capital requirements, to protect customers.

The crowdfunding platforms, and financing businesses that use the platforms, could be in breach of FCA rules and potentially face sanctions. "We expect that you should establish whether you have been facilitating loans via your platform to lending businesses who have lent that money to others who do not have the required accepting deposits permission," the FCA said in a "Dear CEO"letter sent to heads of crowdfunding companies on Tuesday.

It was signed by the watchdog's director of supervision for retail firms, Jonathan Davidson.

The crowdfunding chiefs must respond to the FCA and say whether they have been breaking the rules and, if so, what they will do about it.

In the past, Dear CEO letters have been a last chance for a sector to make changes to avoid enforcement action.

REUTERS