Regulatory framework for the loan-based crowdfunding platforms

Olena Havrylchyk

No 1513, OECD Economics Department Working Papers from OECD Publishing

Abstract: In a growing number of OECD countries policymakers are designing specific regulations for lending-based crowdfunding platforms. In March 2018, as a part of its Fintech action plan, the European Commission also presented its proposal for the EU-wide passporting regime. To evaluate these new regimes, this study collects information about the regulation of lending-based crowdfunding platforms in 17 OECD countries and proposes a theoretical framework to reflect about different regulatory regimes. In this context, we explore market failures in lending-based crowdfunding and identify regulatory challenges. Although lending-based crowdfunding platforms do not technically perform risk and maturity transformation, in some countries, flexible regulation allows them to experiment with different business models to provide services of credit risk management (via risk grades, provision funds, automated lending) and liquidity provision (via secondary markets). These platforms could perform the same functions as banks in the future, but there are theoretical reasons to believe that platform-based intermediation could be more stable than banking intermediation. The success of lending-based crowdfunding platforms hinges on their ability to solve moral hazard issues and overcome significant barriers to entry related to scale and scope economies, adverse selection, as well as funding cost advantage of incumbent large banks. There are also risks related to an excessive reliance on funding of leveraged and ‘too big to fail’ institutional investors that are prone to runs and moral hazard problems.

Keywords: barriers to entry; financial regulation; Fintech; lending-based crowdfunding (search for similar items in EconPapers)
JEL-codes: D40 G01 G21 G23 O33 (search for similar items in EconPapers)
Date: 2018-11-16
New Economics Papers: this item is included in nep-ban, nep-pay and nep-ppm
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Citations: View citations in EconPapers (8)

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https://doi.org/10.1787/24ad924a-en (text/html)

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Working Paper: Regulatory framework for the loan-based crowdfunding platforms (2018)
Working Paper: Regulatory framework for the loan-based crowdfunding platforms (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:oec:ecoaaa:1513-en

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