The FCA has said that new rules governing loans and investments made through crowdfunding are designed to ensure consumers have adequate information about this type of approach say Harris & Co accountants Northampton
The regulations have been developed following an FCA consultation last year which looked at peer-to-peer lending via online platforms.
Christopher Woolard, the FCA’s director of policy, risk and research, said:
‘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.’
Under the new rules. loan-based crowdfunding, which was up by 150% last year to £480m, will be regulated by the FCA from April 2014. The FCA proposes that crowdfunding platforms should be clearly presented, allow the consumer to understand who will ultimately borrow the money, and not downplay risks. They should have resolution plans in place, mapping out what happens to loan repayments if the online platform gets into difficulties. Platforms should also assess the appropriateness of clients wanting to invest without professional advisers.
The FCA says it will also be introducing new prudential regulations over time so that these firms have capital to help withstand financial shocks. The regulator says this is important as consumers who lend money through these firms will not be able to claim through the Financial Services Compensation Scheme.
Securities-based crowdfunding allows people to buy shares or debt securities in a company and was up by around 600% last year compared to 2012, with £28m raised for growing businesses. The FCA already regulates this type of lending, and under the new rules anyone is able to invest up to 10% of their available assets while those who take advice or have the relevant knowledge and experience can invest more. The rules also apply to equity and debt securities such as mini-bonds, which are difficult to cash in.
The FCA says the new rules are designed to provide the same level of protection to investors whether they engage with firms online, or offline as a result of the direct marketing or telephone selling.