The Financial Conduct Authority (FCA) has published new rules for internet crowdfunding platforms, which come into effect next month.
In a statement, the FCA said that making investments via crowdfunding platforms tended to be riskier than using more traditional investments and deposits. Both loan-based and equity-based platforms will be affected by the rules, but to a different extent. “We aim to provide appropriate and proportionate consumer protection and standards that can be applied fairly to differing types of firm,” the FCA added.
Going forward, loan-based crowdfunding platforms will be subject to a ‘disclosure-based’ regime that is similar to that in place for their equity-based peers. They will have to give investors all the information they need to make informed investment decisions and their communications should be “fair, clear and not misleading”.
Furthermore, loan-based crowdfunding platforms must meet minimum prudential requirements to ensure their ongoing viability and take reasonable steps to ensure that existing loans continue to be managed in the event of a platform failure.
When holding client money, platforms must follow rules to minimise the risk of loss due to fraud, misuse and poor record-keeping. They should also provide for the return of client money should the platform fail.
The new rules include instructions for resolving disputes. In addition, platforms must report information to the FCA regarding their financial position, client money holdings, complaints and the loans they have arranged.
Equity-based crowdfunding will be more tightly monitored than loan-based crowdfunding because the FCA sees it as higher risk. So it has introduced a rule that requires investors to certify that they will not invest more than 10% of their net investible assets (excluding their primary residence, pensions and life cover) in crowdfunding.
Barry James, founder of crowdfunding platform The Crowdfunding Centre, said: “One has to wonder whether our FCA is the worst regulator in the Western world. The words that spring first to mind are inflexible, stubborn and unimaginative. Maybe it's time for a change.”
Sally Percy is editor of The Treasurer