Crowdfunding investment comes under a new set of rules imposed by consumer champion the Financial Conduct Authority from April 1, 2014.
The new rules are aimed at protecting investors at apply to operating online platforms that pool money injected by groups of investors.
Crowdfunding firms that come under the new rules include:
- Peer-to-peer lending platforms or peer-to-business lending platforms – which the FCA call loan-based crowd funders
- Investment-based crowdfunding platforms that let investors buy unlisted equity or debt securities or units in an unregulated collective investment schemes (UCIS)
- Offline companies offering equity or debt securities that are not easily realisable
Risk assessment for investors
On April 1, 2014, regulating consumer credit markets will transfer from the Office of Fair Trading to the FCA – including managing crowdfunding markets.
From then, any firm operating in the crowdfunding market will need FCA authorisation to trade.
The main change for crowdfunding firms is they will have to hold a minimum amount of capital to back their investment dealings.
The FCA is also proposing that due to the specialist nature of crowdfunding and the risks involved to investors, activities should be limited to professional investors, clients who understand the risks involved and those not investing more than 10% of their net investable worth.
To prove they have risk-assessed investors, crowdfunding firms will have to prove they have carried out a fact-find checklist.
Regulated crowdfunding platforms will be included on the FCA register
Warnings about bogus advisers
The FCA has also issued these warnings about bogus firms posing as regulated financial advisers:
- Let’s Get Digital Limited
- Conservo Digital Ltd trading as Sat Assist
Dealing with an unregulated firm
If you buy shares, save money or invest with an unregulated firm, you lose any protection offered by the Financial Ombudsman and the Financial Services Compensation Scheme. Broadly, you have no independent place to complain if the deal goes wrong and are unlikely to win any compensation.
Checking if a firm is regulated
Go to the Financial Services Register to check if a firm is regulated in the UK.
Reporting a suspected bogus adviser
Find out how to report unauthorised advisers on the FCA web site
