Peer-to-peer lenders welcome step towards regulation LONDON (Reuters) - The peer-to-peer lending industry has welcomed a commitment by the British government to regulate the internet-based financiers, describing it as a "watershed moment." So-called crowdfunding providers and peer-to-peer lenders, which help businesses and individuals to raise cash from members of the public, had said that rules tailored to more traditional markets were holding back development of a vital source of finance. But from April 2014 peer-to-peer lenders, such as Zopa and Funding Circle, will be regulated by the new Financial Conduct Authority (FCA) and consultation will begin early next year to decide how the new rules will work, the Treasury reiterated on Friday after an announcement in parliament last month. "We have always strongly believed that introducing proportionate regulation was necessary to enable the sector to continue to flourish," the Peer-to-Peer Finance Association said. We are committed to working closely with the government and the Financial Conduct Authority over the coming months to build the right framework for our future. The crowdfunding industry has developed in response to reduced bank lending to small and medium-sized businesses because of tougher capital rules and greater regulatory scrutiny. Though some websites have tried to fit their operations within existing regulation, most remain largely outside it. With little or no expected returns from the latter, the main focus on the need for regulation has been around equity crowdfunding and peer-to-peer lending. The government, keen to improve the flow of finance to small businesses to boost the sluggish economy, has also set up a working group to look at all aspects of policy on such websites. As well as making sure that individuals are aware of the inherent risk involved with putting money in start-ups, the industry wants to ensure that platforms vet businesses adequately to avoid scams. "Regulation is on its way," Susan Kramer, a Liberal Democrat member of the British parliament's upper house, said at an industry summit on Friday. It is not a question of 'will there be regulation?', it is a question of 'will it be the right regulation?' Britain's Financial Services Authority (FSA) warned in August that inexperienced investors should be aware of the risks when using crowdfunding websites. At the moment, the FSA considers authorization of equity crowdfunding schemes case by case, it said. Measures taken by Seedrs, the only crowdfunding website to have received FSA approval, include the requirement for investors to pass a test to show that they understand the risks. There is no question at all that this is going to be a space that will continue to move. Though the introduction of a separate regulated activity could still be some way off, lawyer and co-founder of peer-to-peer site Zopa, Simon Deane-Johns, said that increased engagement with government and regulators was encouraging. "Over the next year or two it should become progressively easier to set up a platform," he said. ($1 = 0.6214 British pounds) ($1 = 0.7700 euros)