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Fintech Market Overview

This article does not constitute legal advice.

Crowdfunding in the UK

Fintech Software

The UK has a very strong market in crowdfunding, peer-to-peer (P2P) lending and payment services, all of which sit alongside the UK's world-leading financial services marketplace.1

The crowdfunding market in the UK is particularly mature and sophisticated – in July 2018, the FCA launched a consultation into the market to identify whether the existing regulatory framework was still relevant and robust enough to ensure that good standards of business are practised by the platforms, particularly where retail investors are involved. As a result of the consultation, the FCA published a new package of rules and guidance to further improve standards, which came into force in December 2019.1

Certain crowdfunding activities require authorisation by the FCA and others do not. All crowdfunding platforms are subject to the FCA's general high-level standards, including the Principles for Businesses and specific Conduct of Business rules; for example, in relation to financial promotions. However, there are differences in the detailed regulatory frameworks that apply to investment-based and loan-based (or P2P) crowdfunding platforms.1

Investment-based crowdfunding has evolved from more traditional ways of seeking equity-based investments, and the FCA regulates it as such. Therefore, an investment-based platform will usually ask for authorisation from the FCA to carry on activities such as arranging deals in investments (Article 25 of the RAO), dealing in investments as an agent (Article 21 of the RAO) and advising on investments (Article 53). Platforms that provide a nominee structure must also apply for a safeguarding and administration of assets permission (Article 40).1

Operating a P2P platform was not adequately captured under the existing list of regulated activities, so, in 2014, the FCA introduced the new activity of operating an electronic system in relation to lending (Article 36H of the RAO), which captures most of what P2P platforms will be carrying on in practice. However, care should be taken if other regulated activities are built into the business model, such as credit broking, debt administration and debt collecting, each of which require separate permission from the FCA.1

The creation of secondary markets on platforms is not prohibited but is becoming increasingly unusual with the more established platforms because of the additional regulatory burden of doing so (not least because of the potential financial promotion issues). It is more common for platforms to create venture capital-like fund structures that give investors the ability to exit the fund without having to find other users to buy their units.1

Payment services in the UK

Fintech in the UK

Fintech in other countries

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UK Fintech Lawyers

Maxim Minaev

Maxim Minaev

We provide legal and organizational services for the creation, structuring and development of fintech companies

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Dr Irena Dajkovic

Dr Irena Dajkovic

International law firm authorised by the UK Solicitors Regulation Authority

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Ilya Druzhinin

Ilya Druzhinin

I have over 22 years of experience in legal practice, most of which is accompanied by e-com and fintech projects

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Notes
  1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/spain
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