Now the financial watchdog has proposed tough new rules, which will force crowdfunding and peer-to-peer lending platforms to comply with the same rules as major lenders on mortgage lending, restrict cross-platform investment and make them come up with clear wind-down plans.
In a statement today the FCA said it was concerned consumers find it hard to compare platforms, while some promotions aren't always clear.
It warned the complex structures of some firms introduce "operation risks and/or conflicts of interest", while some platforms encouraged consumers to get into risks they didn't fully understand.
It said forcing peer-to-peer and crowdfunding platforms to behave more like banks will provide "adequate investor protection while allowing for innovation and growth in the market".
“Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers," said Andrew Bailey, the FCA's new chief executive.
"Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified.”
This is the FCA's second investigation into the sector in the last few years - in 2014 it introduced rules (described by Rohan Silva as "heavy-handed"), which included a limit on the amount of money an individual can invest through peer-to-peer platforms.
But in October figures from the Peer to Peer Finance Association showed lending in the sector has grown by over £2bn since the start of 2016, with the cumulative total now topping £6.5bn.