07 Mar 2014
The Financial Conduct Authority (FCA) has drawn up policies, which will come into force next month, to ensure that investors must certify that they will not invest more than 10% of their money in unlisted crowdfunded businesses.
Crowdfunding involves an entrepreneur asking the public to put cash into a proposal, which could be anything from a book to a business. This happens through websites which allow the fundraiser to advertise their project and offer rewards of various kinds in exchange for financial contributions.
Other sites allow investors to profit if the business succeeds, with the possibility of returns higher than 10%, but the FCA is concerned that the risks of loss are still too great.
Barry James, founder of The Crowdfunding Centre, said the new rules ‘take the crowd out of equity crowdfunding’.
Peer-to-peer lending, a method which allows individuals to lend money to an entrepreneur, usually via a website, will also be affected by the new regulations. Samir Desai, chief executive of peer-to-peer lending platform Funding Circle, welcomed the changes, saying: ‘It’s putting in place sensible operating principles that you would expect in any financial service company’.