On the back of £28 million being raised through equity crowdfunding in 2013, the Financial Conduct Authority (FCA) has followed up on a consultation paper realised in 2013 with a set of regulations.
From 1 April 2014, crowdfunding platforms will be required to provide ‘clear information’ on the risks associated with lending. Loan-based platforms will need to introduce plans that allow for repayments to continue if systems go down.
Under the FCA’s proposals, ‘inexperienced’ investors will have to confirm that they’ll not invest more than 10 per cent of their portfolio in unlisted businesses.
Investment-based crowdfunding is subject to rules which means that it can only be promoted to individuals who are deemed to be ‘sophisticated or high net-worth investors’, or are advised retail clients.
Recent figures released by the Crowdfunding Centre shows that some £1,700 is being raised per hour through equity crowdfunding in the UK. The same source suggests that pledges of more than £5.7 million have been made during 2014.
On top of the £28 million raised via equity crowdfunding in 2013, £480 million was lent through peer-to-peer lending – a process which sees consumers create a portfolio of lending to businesses.
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Further details from the FCA report reveals that new prudential regulations will be introduced so that capital is in place to protect against financial change.
James Meekings, co-founder of debt-based crowdfunding platform Funding Circle, says, ‘The introduction of proportionate regulation will be a step-change for the industry and will cement our position within the wider financial landscape.
‘The FCA has shown foresight in striking the balance between enabling the industry to continue to flourish while ensuring the protection of investors and borrowers.’
Funding Circle is currently facilitating loans of £20 million each month and has received two trenches of finance from Vince Cable’s British business bank to support UK companies.
‘It is critical that equity crowdfunding is more accessible to everyday investors, and the FCA’s confirmed policy on equity crowdfunding achieves this. The UK leads the world in equity crowdfunding and these changes will help build market confidence, ensuring that the crowd remains in crowdfunding and the industry can continue to flourish.’