This article is a brief explainer of Loan-based crowdfunding firms and when they are covered by CASS 7.
Essentially, CASS 7.10.7A notes that Loan-based crowdfunding firms that operate an electronic system in relation to P2P (peer-to-peer) agreements are required to apply CASS 7.
P2P
Loan based crowdfunding
- FCA introduced rules in March 2014
- Includes P2P business lending both secured and unsecured, P2P business, P2P business (real estate), P2P consumer lending (mainly unsecured loans) and Invoice trading (i.e. a business selling invoices to a pool of HNW Individuals or institutional investors).
- P2P lending platforms will need £75k capital under IFPR, previously €50k.
- Will be covered by CASS 7 where they have permission to ‘operate an electronic system in relation to lending’ which is a designated investment business activity under part II of the regulated activities order
The FCA Handbook also sets out in SUP 3 that a client money audit will be required.
Non-P2P
Investment (Equity) based crowdfunding
- Was regulated as part of FSMA 2000 before the term crowdfunding was even coined.
- Includes sales of registered securities, investment into property (through an SPV for example) and Debt-based securities such as a bond or debenture.
- Not covered in the scope of CASS, however they can opt-in to the rules.
Reward and donation-based crowdfunding where no financial reward is received are outside the FCA’s purview.
For further information, or to discuss your specific circumstances, please contact our Audit and Compliance team or via the below contact form.
Whilst the above is intended to reflect what is included in the FCA Handbook, reading this is not a substitute for reading the Handbook itself and cannot be relied upon in assessing whether the rules covered have been correctly interpreted and followed. Please always ensure the appropriate professional advice is obtained to ensure compliance. The FCA Handbook contains the detailed rules and can be accessed here. This information is correct as at the 5thDecember 2022.
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