Bruce Davis is a founder and Joint Managing Director at Abundance, a peer to peer investing platform focused on renewable energy projects. He is also part of the original team that launched Zopa – the very first peer to peer lending platform to set up shop in the UK trailblazing the way for an entire industry. Bruce is also a founding director of the UK Crowdfunding Association so you can bet he knows his way around the alternative finance industry in the UK.
The UK has been heralded as the gold-standard of regulatory policy regarding crowdfunding, peer to peer lending and Fintech in general. Many countries have studied the approach established by the Financial Conduct Authority (FCA) before enacting rules of their own.
Today, the FCA is in the midst of a scheduled post-implementation review of the crowdfunding market and regulatory framework. The agency has published a paper explaining their thoughts and perspective on how disruptive finance has evolved alongside some of their concerns.
Crowdfund Insider recently spoke with Davis during the Cambridge Centre for Alternative Finance inaugural conference and he shared some interesting observations on the FCA and their challenges. Below is a continuation of this discussion as the leading market for Fintech plots a course for future growth.
Crowdfund Insider: The FCA has earned a solid reputation for working with disruptive finance in the UK. As a platform operator, you have direct communication with the FCA. How does that work? Is there a lot of back and forth or do they reach out only when they have an issue?
Bruce Davis: The FCA made great efforts to consult the industry in the process of developing the regulatory framework for crowdfunding in 2014. Since then we have had regular contact with various parts of the FCA to respond to the large number of consultations which have been published across a wide range of regulatory issues – not just those which relate directly to crowdfunding itself. As regulated businesses, we are often affected by changes in the handbook and guidance as would be the case for any financial services sector.
At an individual level, the sector is supervised by a flexible team within the FCA who cover issues as and when they arise. We believe that this level of supervision is sufficient for the risks within the industry although we would like to see greater emphasis on enforcement of rules against businesses which are adjacent to our sector or operating under an exemption.
We are supportive of their efforts to gather objective sources of data, such as the Cambridge Centre for Alternative Finance as this will contribute to better policy making in the future. Certainly, the UK benefits from having a regulator that doesn’t just hide behind a rule book but is willing to talk to the industry and listen when rules are not clear or guidance is needed on specific points.
Crowdfund Insider: The crowdfunding industry is in the midst of a regulatory review by the FCA. Are you concerned at all about the outcome?
Bruce Davis: The review was always planned following the original regulation publication in 2014. The FCA have restated that they want to see regulation that is proportionate and which balances innovation and consumer protection. I think that the questions raised were sensible and well balanced and hopeful that we will continue to have a regulatory structure for crowdfunding which other countries use as a template of best practice.
Crowdfund Insider: The FCA is a large organization with relatively new leadership. Overall, is the agency supportive of alternative finance?
Bruce Davis: Aside from the odd ‘off the cuff’ comment, we have found the FCA takes its responsibilities to foster competition and innovation seriously. It could still do more to encourage innovations which will encourage more people to take control of their money and how it is invested.
Crowdfund Insider: The FCA has acknowledged shortcomings in their internal technology. What needs to be done to bring them up to date?
Bruce Davis: The FCA still starts from the idea that supervision is best done by humans rather than thinking about how technology can save them time and money. The nuance and complexity of the financial promotion rules, in particular, mean that you do need some form of human intervention but I think they could be cleverer in their use of technology to support their supervision teams.
Crowdfund Insider: What changes would you like to see in the oversight of platforms? Do you see things on cause you concern?
Bruce Davis: I think that pound for pound the crowdfunding industry is perhaps the most supervised sector in the whole financial services industry. Our track record of customer satisfaction and low levels of complaints suggests that this could be scaled back and more focus put on enforcement of the rules against those who operate outside of our regulated sector (but who still offer investments to the public under exemptions or old assumptions about the permissions surrounding an offer of investments to the public).
Crowdfund Insider: Do most of the other platforms agree with you? How big of a role has the UKCFA played in helping to guide regulations?
Bruce Davis: Some platforms wanted to see greater scrutiny of the loans sector and the introduction of appropriateness tests as a standard across the whole industry. However, the UKCFA takes a balanced view of the need for such impositions, and would rather that the FCA assessed the need for compliance with such rules on a platform by platform basis to reflect the diversity of models and assets out there in the market.
The UKCFA and P2PFA have both played active roles in supporting the call for evidence and members have given up time from their businesses to help the FCA get the evidence they need to make what we hope will be enlightened policy decisions (if any changes are needed at all).