The Financial Conduct Authority (FCA) sounded the note of caution at the Westminster Business Forum when the regulator said innovation was not a licence to cut corners.

When asked about the risks in FinTech businesses such as online crowdfunding, Tony Craddock, Director General of the Emerging Payments Association, said not all platforms were generating low-risk secure investment opportunities.

“It is a little bit of a Wild West out there,” said Tony.

“In the Wild West not everybody establishing a business to solve a problem is going to be doing it in a totally ethical, totally appropriate, totally secure low-risk way.”

When Bob Ferguson, Head of Department, Project Innovate at the FCA, was asked how the regulator would react if a crowdfunding or a peer-to-peer platform collapsed, he said: “We try very hard to be a forward looking risk-orientated regulator and there is huge apparatus in place at the FCA, and I believe at the Prudential Regulation Authority (PRA) as well, which is designed to foresee risks and to make sure the risks that are foreseen are covered by appropriate mitigating action.

“Once the regime has been in place for two years we are going to conduct a proactive review to take stock on how it is going and obviously we need to stand ready to react to changes.”

Giles Andrews, Chief Executive of Zopa, a founding member of the Peer-2-Peer Finance Association (P2PFA), praised the FCA for its approach towards innovative lending platforms.

“When Zopa launched, we found a way to launch our business in a completely unregulated manor,” said Giles.

“Over time we came to realise that that route lay an opportunity for people to misuse that route and potentially do what we did but rather badly and suffer greater consumer risk.

“So we lobbied for regulation and we are an example, as a sector, of how an industry sector can come together and achieve a regulatory environment that works for the sector and protects consumers in the long run, and we are delighted with the interaction we have had with the FCA over now three years.”

Giles revealed that over 100 P2P lenders had now applied for FCA authorisation and believes that FinTech businesses should look to create standards which will lead to a better regulatory framework.

“We decided to form the Peer-2-Peer Finance Association in 2011, which was an organisation which had one purpose in mind, which was to lobby for regulation,” said Giles.

“We decided that we would create our own standards which we would publish and hold ourselves to account, and then we would lobby for regulation.

“Pleasingly, many of the standards we came up with formed part of the regulatory framework that we now operate under.”

Giles stressed the importance of the role played by the P2PFA in regulating the industry, and suggested that it also took some of the pressure off the regulator.

“We think it is important to continue as a trade association and continue to monitor those standards, simply because we are probably more alert to transgressions on them,” said Giles

“That’s not criticising the regulator but we are interested in each other’s businesses and we are probably going to hold ourselves to greater account.

“That is because we still believe strongly that any business which operates badly will severely impact the credibility of the sector as a whole.”