In a Financial Times article, it noted an escalating war of words between representatives of crowdfunding and peer-to-peer industries over the definition of online fundraising by financial regulators. UK Crowdfunding Association (UKCFA) Chair Julia Groves responded to Peer-to-Peer Finance Association representative Christine Farnish about the latter's claim regarding the Financial Conduct Authority's (FCA) definition of online crowdfunding. Farnish said the FCA was mistaken in using the word crowdfunding as a general term for both equity and debt fundraising.
Farnish argued the financial regulator's definition last week and insisted that the hybrid term "loan-based crowdfunding" FCA used on its consultation on online fundraising regulation was meaningless.
"Language is important. This is a regulator that should know better. It seems that it is just convenient for them to lump all this new stuff into one bundle. But that confuses everyone," Farnish said, claiming that the term mixes peer-to-peer (P2P) lending with equity crowdfunding.
Groves responded Farnish's statement, highlighting the fact that some crowdfunding platforms enable debtors to obtain loans via debt-based securities. Debt-based securities, Groves said, enable individual investors to lend to businesses at low risk.
"Any suggestion that crowdfunding is just about taking equity in early-stage businesses is both unhelpful and entirely inaccurate," Groves said.
Groves argued that instead on focusing classifying online fundraising types, FCA should focus on coming up with different regulation levels for debt and equity funding services.
"The characterization of peer-to-peer simple loans versus debt-based crowdfunding models as low-risk versus high-risk is, in our view, a mistake. Both models allow retail investors to access lower-risk assets, but where there is a debt security or a retail bond the funds are raised by a public limited company with a full offer document and higher standards of disclosure. That these should be treated as higher risk than a simple loan is counterintuitive," Groves added.
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