The findings emerged from a review conducted by the FCA between April and October 2014 which looked at both loan-based and investment based platforms in the crowdfunding market.
In its review, the FCA criticised investment-based firms for “cherry-picking” information which it said could lead to a misleading or unrealistic view of the investment a customer was purchasing.
Additional issues identified among investment platforms included: a lack of balance with a failure to properly indicate the risks and the downplaying of important information.
Loan-based crowdfunding platforms also came under fire, where “similar issues” were found. The FCA said it also identified the absence or lack of prominence of the Annual Percentage Rate for the borrower’s benefit and insufficient information in promotions about the taxation of investments.
Further issues included:
• promotions comparing crowdfunding investing to savings accounts and banking and, in doing so, creating the impression that the lender’s capital was secure.
• promotions having a lack of balance by giving prominence to the benefits of borrowing without a prominent indication of risk in relation to the borrower’s financial circumstances.
Christopher Woolard, director of strategy and competition at the FCA, said: “Over the last year we’ve seen the extraordinary growth of peer-to-peer and equity-based crowdfunding continue. Our aim, with the rules we put in place in April, is to ensure that the growth we’re seeing comes with appropriate investor protection in place.”
According to figures calculated by Nesta and the University of Cambridge, loans made on loan-based crowdfunding platforms in 2014 reached £1.3bn, compared to £480m in 2013. By the end of 2014, 56 loan-based crowdfunding firms were in operation.
Gonçalo de Vasconcelos, founder and CEO of equity crowdfunder SyndicateRoom, confirmed it was not one of the offending platforms taken to task by the FCA and said it welcomed the report.
“It is crucial for investors and the reputation of the sector that those companies that have been misleading customers take immediate steps to improve their openness and honesty. Sadly these shortfalls in the behaviour and practices of just a few of the platforms can hurt the standing a reputation of the whole zone, which is both unfair and unhelpful to everyone concerned, including investors.”