| LONDON, March 6
LONDON, March 6 The fast-growing crowdfunding
sector will be subject to tighter regulation to provide more
transparency and protection for investors, Britain's financial
watchdog said on Thursday.
Crowdfunding allows individuals and small businesses to
raise money from pools of investors who can put money into
peer-to-peer lending schemes or securities such as unlisted
Such fundraising is often hosted an online platforms such as
Crowdcube, Funding Circle and Kickstarter.
Unlike more traditional private equity funds catering to
wealthy individuals or institutions, ordinary people can gain
exposure to growing companies by lending as little as 10 pounds,
often without the fees accompanying equity funds.
Britain's Financial Conduct Authority (FCA) said the new
rules would provide greater transparency in loan-based
crowdfunding - companies seeking funds would have to provide
"fair, clear information" to allow investors to assess risk.
Firms running loan-based platforms would also be required to
have provisions for loan repayments to continue, even if the
platform itself falls into difficulty.
The regulations prevent investors who do not receive
financial advice or have a financial background committing more
than 10 percent of their investment portfolio to securities
Sophisticated investors such as wealthy individuals with
investment experience and private equity funds will be allowed a
greater amount, the FCA said in a statement.
At present, there are no rules in place for loan-based
crowdfunding, while there are some FCA guidelines for
The crowdfunding sector is growing fast. British investors
provided 480 million pounds ($803 million) in loans and bought
28 million pounds in unlisted securities in 2013, up 150 percent
on the previous year.
The model has also taken off in the United States. This week
U.S. crowdfunder Kickstarter said it had now raised $1 billion
for projects since it began in 2009, with more than half of that
being pledged in the past 12 months.
But despite crowdfunding's soaring profile, some have voiced
concerns over investor protection in the sector. The FCA
launched a consultation last year, and the new rules will come
into force from April.
"One of the biggest challenges we've come across is people
saying, 'Oh, you're unregulated', and that raises questions,"
said James Meekings, co-founder of Funding Circle, a loan-based
platform which hosts 20 million pounds a month in lending.
The FCA added it would introduce tougher capital
requirements further down the line, since such investments are
not subject to protection under the Financial Services
Compensation Scheme. Platforms are already required to have a
minimum capital base of 20,000 pounds.
"We want to ensure that consumers are appropriately
protected but not prevented from investing," said Christopher
Woolard, director of policy, risk and research at the FCA.