Tougher crowdfunding rules proposed by FCA

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Tougher rules are needed to protect investors in crowdfunding platforms, the Financial Conduct Authority (FCA) has said.

It said it was too difficult to assess the risks and returns of investments, and suggested applying "mortgage-lending standards" to loan-based platforms or peer-to-peer lending.

It follows industry regulations in 2014 that some providers called restrictive.

But the FCA says it wants protections that are "appropriate for the risks".

Crowdfunding - with platforms such as Crowdcube and Seedrs - taps into ordinary consumers who want to buy equity, or a stake, in a new start-up, or lend it money.

Another form of crowd-funding is loan-based, or peer-to-peer lending, with platforms such as RateSetter, where consumers lend money in return for interest payments and a repayment of capital over time.

While some crowdfunded businesses succeed, about one in five fail, according to data compiled in 2015 by AltFi Data and law firm Nabarro, leaving investors out of pocket.

'Not always fair'

Following a recent review of the market the FCA said it had found a number of weak spots in the market.

It said that it was difficult for investors to compare crowdfunding sites with each other - or with other asset classes - due to "complex and often unclear product offerings".

It also found that financial promotions were not always "clear, fair and not misleading", and that the complex structure of some investments created "operational risks that are not being managed sufficiently".

And on loan-based platforms specifically, it said that stronger rules were needed in the event a crowdfunded business failed.

FCA chief executive Andrew Bailey said the watchdog would consult on tougher rules around the disclosure of information next year.

"Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interest of consumers.

"We plan to consult next year on new rules to address the issues we have identified."

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