FCA Publishes Proposals On Crowdfunding Regulation

New Rules For Investment-Based Platforms And Peer-To-Peer Lending


The Financial Conduct Authority (FCA) has published new proposed rules related to the regulation of both investment-based crowdfunding and peer-to-peer lending.

According to the regulatory body, its new proposals are designed to ensure that consumers who want to invest in small or start-up businesses via crowdfunding platforms will gain more transparent information regarding the firms they are investing in.

Specifically, the key proposals for peer-to-peer schemes – also known as loan-based crowdfunding platforms – include rules that information about platforms should be clearly presented with no misleading information on interest rates and clear resolution plans in the event the scheme collapses.

For investment-based crowdfunding platforms, the FCA has made changes to existing rules which include that firms can only promote such platforms to sophisticated or high net worth investors, or retail clients who receive regulated investment advice or investment management services from an authorised person. 

For non-advised clients, firms must assess appropriateness before allowing them to invest through the platform.  The restrictions the FCA has placed on the marketing of unregulated collective investment schemes, or UCIS, will apply to platforms that offer these investments.

Christopher Woolard, the FCA’s director of policy, risk and research, said ‘consumers need to be clear on what they’re getting into and what the risks of crowdfunding are’ and said the aim of the rules were to provide “clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this innovative source of funding”.

Expert Opinion
Interest in crowdfunding schemes has risen significantly in recent years and this growing prominence is reflected in the FCA’s decision to propose a new set of regulations to ensure that those involved in such platforms are properly protected from the potential risks which can emerge. The FCA’s concern is that these schemes can be complex, high risk and return from investment may not materialise.

"We would urge small businesses and start-ups, as well as investors making use of these processes, to carefully review the proposals outlined by the FCA and feed back their views during this consultation.

"Considering the popularity of the schemes it is vital that those interested in crowdfunding follow the progress of these proposals closely, as failing to comply with future regulations in this area could lead to significant penalties."
Sarah Wallace, Partner