The UK government has announced proposals to clear the path for the growth of peer-to-peer finance platforms (also known as 'crowdfunding').
The latest government response to the Red Tape Challenge shows a determination to make it easier to innovate in ways that deliver lower cost, transparent financial services to consumers and small businesses.
The government is sensitive to concerns that any regulation in this area should be proportionate and not raise barriers to entry or further innovation. As a result, the government wishes to encourage continued self-regulatory efforts by the Peer-to-Peer Finance Association to address common operational risks, and to engage with policy-makers and regulators.
Critically, the government will also create a cross-departmental working group comprising representatives of all the relevant bodies it considers ought to be engaged in the development of peer-to-peer finance. Specifically, that working group will "monitor the appropriateness of the current regulatory regime for peer-to-peer platforms" and take the lead in engaging with the peer-to-peer finance industry.
The composition of this working group is testimony to the broad policy implications and opportunities posed by this new form of financial model. The list of members includes the Office of Fair Trading, the Department of Business Innovation and Skills, HM Treasury, the Financial Services Authority and the Cabinet Office. However, it is known that the Department for Culture Media and Sport is also very interested in the potential for peer-to-peer finance to fund the development of the arts and entertainment industry.
Peer-to-peer industry concerns were also backed by Mark Littlewood, Director-General of the Institute of Economic Affairs, in his response as Sector Champion for this aspect of the Red Tape Challenge. His report offers various additional solutions as an alternative to regulation. However, he does recommend certain exemptions be introduced to the financial regulatory framework to enable 'crowd-investing' for shares in start-up companies.
Interestingly, Mark Littlewood has also suggested a means of 'future-proofing' regulation. He suggests regulators should be open to engage with new entrants at an early stage of their development to provide them with enough certainty to get started quickly. Officials should support appropriate self-regulation in the early phases, for example, through accreditation with the UK Accreditation Service (who presumably would also need to be similarly approachable and flexible).