The changes relate to peer-to-peer lending and equity investment based crowdfunding, the two types of crowdfunding that need regulatory oversight.
Loan-based crowdfunding platforms will be required to make sure information about the platform is clear to the customer, especially regarding potential risk, with plans in place in the event of the platform collapsing. For investment-based crowdfunding platforms, the FCA is tailoring an existing rulebook rather than creating a new one so there are fewer proposed change.
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. Our rules provide this 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.”
Christian Faes, Co-Founder and Director of LendInvest, said:
"LendInvest is glad that online P2P lending platforms are going to be regulated by the FCA. Regulation is a positive thing for the industry. It ensures that the players in the market are reputable, and that appropriate investor protections will be put in place - which at the end of the day will bring about investor confidence in electronic P2P as an asset class.
"The regulation of online P2P trading platforms presents London with the opportunity to be a global player in the rapidly evolving peer-to-peer lending market. London is the home of global finance, and with a sensible regime for P2P, London can be at the epicentre of global financial innovation."
Goncalo de Vasconcelos, founder of the equity-based crowdfunding platform, SyndicateRoom, comments:
"While we welcome a consultation that's aimed at ensuring transparency and consumer protection, it's important that over-regulation isn't allowed to kick the crowd out of crowdfunding. There's a misconception that just because people are investing small amounts, they are somehow unsophisticated and naive. This is a terribly conceited view of what is the first truly democratic form of investment. The crowdfunding sector is growing fast, and it's both understandable and encouraging that the FCA is taking an interest. But it shouldn't choke off such an exciting new form of investment with heavy-handed regulation.
"Clearly there are risks involved with crowdfunding and it is much riskier than placing money on deposit. It's absolutely vital that these risks are clearly outlined to anyone who invests, or lends, their money via a crowdfunding platform. As with many investments, there is a risk that consumers could lose all the money they invest through a crowdfunding platform.
"For most people, crowdfunding will be a satellite in their portfolio, rather than a core. Investment-based crowdfunding platforms like our own are high risk and for most people will only generally constitute a small holding in their portfolio. It's also important that consumers understand that the platform they are investing through is stable and the FCA's focus on minimum prudential requirements clearly addresses this fact."
