Watchdog fears crowdfunding is too high risk

Tim Wallace
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SMALL investors may have been misled by the presentation of equity and debt crowdfunding as a safe way to save their money, the Financial Conduct Authority has said.

Crowdfunding platforms are often used by small and growing businesses to raise funds either at cheaper rates than they could get from banks, or when other finance is unavailable.

But the Financial Conduct Authority is worried that investors are desperately seeking an alternative to low interest rates in bank accounts.

“A majority of those investing in personal loans said they use at least some money that would otherwise be saved,” the FCA study found. “We are, therefore, particularly concerned about promotions in this sector that encourage investors to see loan-based crowdfunding as being equivalent to holding money on deposit. Investors should understand that there are greater risks involved and they may lose some or all of their money.”

GLI Finance, which has invested in crowdfunding platforms, welcomed the report, and called for robust regulation.

“It is no good if platforms simply blow-up, as the hard won confidence of retail and institutional backers will be lost,” it said.