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Regulator unveils tighter crowdfunding rules

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06/03/2014
Consumers who lend money or invest through crowdfunding platforms will be better protected under new rules unveiled by the regulator today.

The Financial Conduct Authority (FCA) said the measures will give consumers more access to “fair, clear information that is not misleading”.

Crowdfunding is a way for small businesses and individuals to raise capital and typically involves a number of people pooling money through a website, often called a platform.

Businesses raised £28m last year though securities-based crowdfunding, which is already regulated by the FCA and allows people to buy shares or debt securities in a company.

Loan based – or peer to peer lending – sites, which will be regulated by the FCA from April 2014, saw £480m lent by consumers to individuals and businesses in 2013.

Under the new rules for securities-based crowdfunding, anyone will be able to invest up to 10% of their available assets. Those who take advice or have the relevant knowledge and experience can invest more.

The security-based crowdfunding rules also apply to equity and debt securities such as mini-bonds, which are difficult to cash in.

Investors will receive the same level of protection whether they engage with firms online, or offline as a result of direct marketing or telephone selling.

For peer-to peer lending, platforms will be required to have plans in place so that loan repayments continue to be collected even if the online platform gets into difficulties.

The FCA said it would introduce new regulations over time so that these firms have capital to help withstand financial shocks.

This is important as consumers who lend money through these firms will not be able to claim through the Financial Services Compensation Scheme.

Christopher Woolard, director of policy, risk and research at the FCA, said:”We want to ensure that consumers are appropriately protected – but not prevented from investing.

“We have been careful to listen to feedback from the market and the rules provide consumer protection, whilst allowing businesses to continue to have access to this innovative method of funding.”

Ayan Mitra, CEO of CrowdBnk, a UK equity crowdfunding platform, said:”We are pleased to see that the FCA has kept the ‘crowd’ in crowdfunding, by allowing anyone to invest up to 10% of their available assets. This ensures crowdfunding remains available to all types of investor and, on the whole, we think the approach strikes the right balance between consumer protection and access to investment opportunities.”

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