THE CENTRAL BANK has issued a warning to consumers over the unregulated status of crowdfunding and peer-to-peer lending.

The two cash-raising techniques have become increasingly widespread as small businesses find it hard to raise traditional bank finance.

They involve businesses raising funds by amalgamating small sums invested by non-experts, often through third part platforms.

The Central Bank’s warning details concerns about risks specific to lending money through crowdfunding platforms, including the risk of the investor company or indeed the platform itself failing.

It also flags “the risk of misleading or insufficient information disclosure, unfair contract terms of misleading commercial practices, and the absence of dispute resolution and redress mechanisms”.

The bank’s statement does acknowledge that crowdfunding or peer-to-peer lending “is a type of market-based finance that could help stimulate funding to small and medium sized enterprises as well as personal lending”.

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While the Central Bank told TheJournal.ie this morning that it is not hitting the ‘red alert’ button on crowdfunding and peer-to-peer lending, it considers it important nonetheless that consumers know its regulatory status.

Industry response

A spokesperson for one of the leading Irish peer-to-peer platforms, Linked Finance, said that the company wanted to see the industry regulated.

“We have engaged from the outset with the Department of Finance and the Central Bank and consistently called for regulation within our industry.”

Linked Finance said that it has multiple measures in place to assess the loans that go through the platform and that it adheres to anti-money laundering requirements to vet lenders and borrowers.

Whilst we are not a regulated entity, we ensure that the principles of these regulations form the basis for how we safeguard our lenders and borrowers funds

The spokesman concluded by saying that the company would welcome the government taking action and regulating the peer-to-peer sector.

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