Financial regulation may not be the most exciting part about investing but there is nothing more important.
The financial regulation we have in the UK is respected around the world. It’s one of the reasons why this country is a leading global hub not just for investment but also for alternative finance. The continual evolution of how people can invest is matched - as it must be - by non-stop regulatory developments to ensure that consumers are protected.
The UK is at the forefront of innovation, and technological advancement coupled with changing consumer demand means that business models are changing. Financial services is at the forefront of this: as a whole the sector is evolving and so regulation must evolve with it. In fact, it is the continuing evolution of financial regulation that facilitates and accelerates the disruption of financial services, of which British Pearl is part. Our job is to keep on top of these changes and to ensure that our business adheres to them.
Fundamentally, regulation exists to protect the consumer.
In June the FCA published new rules on loan-based and investment-based platforms - to be complied with by 9 December 2019 – aimed at improving standards in the alternative finance sector. The changes include tightening systems and controls, ensuring effective wind-down planning, more protective marketing to consumers as well as requiring firms to undertake appropriateness testing before consumers can invest.
This will contribute to retail investors making more informed investment decisions that are appropriate for their risk appetite.
Unsurprisingly, given that many members of our team have backgrounds in law and finance, we have a cautious culture here. This can be seen by the sophisticated and conservative way we tackle financial forecasting. We want to minimise the risk to our customers and by doing so, we are confident we can maximise the reliability of the returns. This attitude is pervasive across the business and so naturally includes the compliance team whose role is to ensure that we meet the high standards demanded by financial regulation.
As British Pearl offers people two ways to invest - shares and loans - we have two permissions from the FCA. The first is typical for funds in the City: alternative investment fund management (AIFM). The second covers the loan side: operating an electronic system in relation to lending. This is a newer permission and the rules have not been as comprehensive and detailed as with alternative investment fund management. The changes announced in June mean that higher standards will need to be met across the board.
Even before the FCA’s announcement, British Pearl had put in place an onboarding process to ensure that our investors clearly understand our product and that the capital they commit is an amount they can afford.
If platforms not only adhere to the new FCA regulations but go further – working to educate investors and committing to being transparent about product risk – it can only lead to stronger foundations across this new and innovative industry.
Over the longer term, transparency and robust core business models within the industry will drive investor returns and confidence in the sector, helping to bolster and diversify portfolios through market cycles and uncertain times.
A strong compliance framework provides the foundations for our business upon which we have built a long-term investment platform to give your money a home.
Kobi Lehrer is co-founder and General Counsel at British Pearl