<
p>The Financial Conduct Authority (FCA) is planning a crackdown on crowdfunding by April 2014.
The FCA fears that individuals are being lured into pledging money without being fully aware of the risks, a spokesperson said in a Sunday Times interview.
Crowdfunding, which raises cash for start-ups and small businesses struggling to secure bank loans for expansion, will face regulation by next April.
The FCA spokesperson said: “We believe most crowdfunding should be targeted at investors who know how to value a start-up business, and who appreciate the risks involved and that they could lose all of their money.
“We want it to be clear that investors in the majority of crowdfunds have little or no protection if the business or project fails.”
Despite its growth over the past two years, crowdfunding is relatively new to the UK and the market is small, especially compared to the US. However, there is increasing interest in it as a new way for businesses and individuals to raise funds and investment purposes.
At present, some crowdfunding platforms are structured so that they do not require regulatory authorisation under the current rules. Furthermore, most of the actual crowdfunds themselves are not authorised and operate without offering a chance of redress.
Accordingly, if a particular investment fails, the investor has a higher risk of losing all of their investment than would be the case for other forms of investment; and, as the funds are unauthorised, they will not have recourse to the Financial Ombudsman Service or be protected by the Financial Services Compensation Scheme.
Some crowdfunding sites have paid to secure approval from the FCA, but sites not vetted by the FCA can sell shares only to investors who have paid to sign up to their site, and offer no reimbursement if a start-up fails.
The FCA has said that it believes that most crowdfunding should be targeted at sophisticated investors who know how to value a start-up business and who fully understand the risks involved.
Another major concern expressed by the FCA is that some crowdfunding platforms may be handling client money without proper regulatory permission or authorisation. Such organisations, and the individuals involved in running them, may be at risk of sizable fines and even criminal sanctions.
Luke Lang, co-Founder of Crowdcube, stated: “We are determined to keep the ‘crowd’ in crowdfunding. We want to ensure that any proposed changes to regulation are considered and proportionate, and do not over-regulate a nascent industry out of existence.”
According to the title, the FCA is planning to meet with crowdfunding businesses in October and it hopes to announce plans for regulating the sector by February 2014.
There are around eight equity crowdfunding sites in the UK, and almost 20 rewards-based models.
The Financial Conduct Authority (FCA) is planning a crackdown on crowdfunding by April 2014..
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