The Financial Conduct Authority have outlined rules to govern online crowdfunding platforms that offer loans and equity funding. The FCA want to ensure these services are transparent and that sufficient safeguards are put into place.
They want to introduce an “appropriateness test” which will attempt to ensure that the platforms check possible clients are properly advised or that they’re only investing 10% of their investable assets. The FCA also wants to make the crowdfunding sites give out proper information about their activities.
These steps should help to solidify crowdfunding as a legitimate way to raise funds, especially with SMEs struggling to get access to cash.
The regulator has said that protecting consumers is their top priority. Although, the new rules will not apply to all platforms. They will only affect those which offer equity stakes for money, rather than the ones that give out rewards or just accept donations. This is a positive sign as it allows those who are setting up more simplistic campaigns to avoid getting caught up in regulatory problems.
Crowdfunding has been growing as a way to raise funds as traditional routes have been harder and harder to traverse. Over £1bn has been raised using this method, according to research from Nesta.
The new regulations will come into force in April, with the new business year. Christopher Woolard, the director of policy, risk and research at the FCA, has said, “We want to ensure that consumers are appropriately protected, but not prevented from investing.”
Image by Ilya Repin.