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FCA unveils plans to regulate crowdfunding

by: Tahmina Mannan
  • 24/10/2013
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FCA unveils plans to regulate crowdfunding
The Financial Conduct Authority (FCA) has proposed new rules for regulating the crowdfunding and peer-to-peer lending industry.

Under the proposals, consumers who want to invest in small or start-up businesses via crowdfunding platforms will receive clearer information about the business in which they are investing.

Crowdfunding is a way for small business, organisations and individuals to raise capital in order to grow. Typically, it involves a number of people pooling money through a website, often called a platform. This type of lending is also called peer-to-peer lending.

The watchdog said investors willing to lend money to companies through peer-to-peer crowdfunding websites will receive explanations of the key features of the loans as standard.

They will also benefit from an assessment of the creditworthiness of borrowers before granting credit, and crowdfunding sites will need plans in place to ensure loan repayments continue even if a crowdfunding company collapses.

A 14 day cooling off period will allow both borrower and lender to withdraw without penalty from the agreement if either changes their mind. New prudential requirements will also be phased in.

Christopher Woolard, the FCA’s director of policy, risk and research, said: “Consumers need to be clear on what they’re getting into and what the risks of crowdfunding are. Our rules provide this clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this innovative source of funding.”

The crowdfunding market is currently worth about £360m in the UK, with 90% of crowdfunding conducted through peer-to-peer platforms.

The FCA has also proposed new rules for investment-based crowdfunding, which is already regulated.

It said the proposals will make the crowdfunding market more accessible, help foster competition and facilitate access to alternative finance options while also providing additional consumer protection.

The FCA will take over regulation of consumer credit from the Office of Fair Trading next April.

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