This announcement follows a consultation by the regulator last October.
The FCA said the new rules would give consumers adequate protection when they lend or invest into crowdfunding platforms. It described the market as ‘small, but growing rapidly’.
Loan-based crowdfunding, largely made up of peer-to-peer (P2P) lending, will come under the FCA’s regulatory control in April. Around £480m was lent by consumers to individuals and businesses in 2013.
The rules will ensure all consumers are provided with clear information to understand who will ultimately borrow the money. Firms running the crowdfunding platforms will also be required to have contingency plans in place so consumers are still paid even if the platform is in difficulties.
The FCA is also looking to introduce prudential regulations over time so these firms have capital to help withstand any financial shocks. The FCA said this was important as consumers will not have access to compensation through the Financial Services Compensation Scheme.
Securities-based crowdfunding is already regulated by the FCA and allows people to buy shares or debt securities in a company. This part of the sector was worth around £28m last year, a rise of 600% on 2012 levels.
Additional rules for will allow anyone to invest up to 10% of their available assets with those who take advice or have the relevant knowledge and experience able to invest more.
Christopher Woolard, director of policy, risk and research at the FCA, said: “We want to ensure that consumers are appropriately protected – but not prevented from investing.
“We have been careful to listen to feedback from the market and the rules provide consumer protection, whilst allowing businesses to continue to have access to this innovative method of funding.”
James Meekings, co-founder of crowdfunding lender Funding Circle, said the move would be positive for the industry.
“The introduction of proportionate regulation will be a step-change for the industry and will cement our position within the wider financial landscape,” he said. The FCA has shown foresight in striking the balance between enabling the industry to continue to flourish while ensuring the protection of investors and borrowers.
“Peer-to-peer lending is now a £1bn industry and it is predicted to grow to over £12bn per year within the next decade. Funding Circle alone is currently facilitating £20m of loans every month so it’s only right that an industry of this size becomes regulated, giving consumers even more confidence that peer-to-peer lending is here to stay.”