UK Crowdfunding Regulation Is Tightened
The City regulator has announced new rules from April to better protect UK investors in the fast-growing crowdfunding and peer-to-peer lending sectors.
The Financial Conduct Authority (FCA) confirmed the move in the wake of a consultation on regulations.
A key part of its plan was to increase transparency, the FCA said, leaving potential investors better informed about the companies or individuals seeking funds.
Crowdfunding platforms had cited trust as a key reason behind a reluctance to make investments despite British investors providing £480m in loans and buying £28m in unlisted securities in 2013.
That represented a rise of 150% on the previous year, with investors keen to seek alternative ways of making returns on their money amid volatile stock markets and poor savings rates.
Crowdfunding, which raises cash in return for stakes in a new business, and peer-to-peer lending which allows individuals to provide loans to entrepreneurs, are often hosted on online platforms such as Crowdcube, Funding Circle and Kickstarter.
Unlike more traditional private equity funds catering to wealthy individuals or institutions, ordinary people can gain exposure to growing companies by lending as little as £10 - often without the fees accompanying equity funds.
The FCA said those seeking funds would have to provide "fair, clear information" to allow investors to assess risk.
Firms running loan-based platforms would also be required to have provisions for loan repayments to continue, even if the platform itself falls into difficulty.
The regulations will prevent investors, who do not receive financial advice or have a financial background, committing more than 10% of their investment portfolio to securities crowdfunding.
Sophisticated investors such as wealthy individuals with investment experience and private equity funds will be allowed a greater amount, the FCA said in a statement.
At present, there are no rules in place for loan-based crowdfunding, while there are some FCA guidelines for securities.
The FCA said it would introduce tougher capital requirements further down the line, since such investments are not subject to protection under the Financial Services Compensation Scheme.
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