Regulatory Arbitrage in a FinTech World: Devising an Optimal EU Regulatory Response to Crowdlending

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Abstract
The article begins by addressing central definitional and taxonomical issues for crowdlending (also known as peer-to-peer lending) as an evolving species of debt-based crowdfunding within the FinTech industry. It considers the regulatory tension between facilitating growth of the crowdlending industry and the need for regulatory intervention to ensure adequate investor protection. Regulatory lag is evident in uncertainties surrounding the application of existing EU regulatory instruments for credit institutions not written with crowdlending in mind. The regulatory vacuum at EU level enables regulatory arbitrage and a race to the bottom by platform operators. Accordingly the case is made for a proportionate European directive for crowdlending based on a prudential licensing and passporting framework covering matters such as minimum capitalisation, due diligence, disclosure rules, conflicts of interest, client money rules, protection for investors against bad debts and platform collapse, as well protection for the economy as a whole against potential systemic risk.

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