Crowdfunding platforms offering regulated peer to peer (P2P) loans and unregulated business to business (B2B) loans? The Financial Conduct Authority (FCA) is proposing to change how you hold client money in your accounts.

Operators of loan-based crowdfunding platforms providing regulated P2P loans are currently required to keep investors' money (money to be lent and repayments) separate from the platform's own money in a segregated client account under the FCA CASS 7 Rules.

Where a platform offers both P2P and B2B lending, it must further split the monies, keeping money relating to P2P loans separate from money relating to B2B loans. This requirement can increase costs and administration for affected firms.

The FCA has issued a Consultation Paper setting out its proposals to allow these platforms to hold P2P money and B2B money together, under CASS 7, separate from the platform's money.

It is an "opt in" solution, so platform operators should weigh up whether doing so will really be less burdensome than the status quo.

Proposals

Firms would be allowed to hold all lenders' money in relation to both P2P and B2B under CASS 7.

There would not necessarily be any need to distinguish between P2P and B2B agreement monies.  However, the firm would not be able to rely on the professional client opt out rule in CASS, even where a B2B lender might properly be classified as a professional client.

Should the firm opt in, the ban on taking full ownership (or title transfer) of lender monies relating to P2P agreements will be extended to cover lender monies relating to B2B agreements.

This does not mean that the B2B agreements will fall within the scope of regulation for purposes other than client money.

If you do decide to opt in, you must keep a record of the decision and inform the FCA by giving at least one month's notice. You must also inform all P2P lender clients in writing. The same would apply if you cease to continue with the election.

Where the firm has not opted-in, the FCA proposes to issue guidance stating that where a firm operating a loan-based crowdfunding platform holds un-invested funds for a P2P client, this should be client money and should be held under the CASS rules. There will, however, be an exception to this rule, where that money could never be invested under a P2P agreement. Such circumstances could be, for example, where the client agreement states that the client's money will only be lent under a B2B agreement.

When it comes to loan repayments, the current rule on mixed remittances will continue to apply, allowing the firm to receive a single loan repayment from a borrower into a client bank account and to remove any B2B monies at the next daily reconciliation.

Responses to the consultation can be made online on the FCA website until 11th February 2016.

If you would like to know more on this topic, or in relation to any other aspect relating to the regulation of operators of P2P lending platforms, please contact Penny Sanders.