The Financial Conduct Authority (FCA) has set out today how it will regulate crowdfunding, enforcing prudential requirements for platforms.
Loan-based crowdfunding platforms, which allow businesses, organisations and individuals to raise money through people pooling money, will now be required to immediately present clear information as standard and have in place resolution plans that ensure loan repayments continue to be collected if a platform collapses. Customers will also be able to access an assessment of the creditworthiness of borrowers before granting credit.
Firms will now have to have a minimum prudential requirement of either a percentage of loaned funds or a fixed minimum of £50,000 - whichever is higher. The minimum will be kept at £20,000 until April 2017 in order to allow platforms to acclimatise, says the regulator.
Comparisons and promotions have been set restrictions, and a 14-day period of grace for borrowers or lenders to withdraw has been implemented, and again for the latter where no secondary market is provided by the platform.
Christopher Woolard, the FCA’s director of policy, risk and research, said that consumers need to be clear on what they’re getting into and what the risks are. "Our rules provide this clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this innovative source of funding."
For investment-based platforms, the FCA is doctoring and extending the existing rulebook to limit the retail market to which customers platforms can promote. Firms will also need to apply for FCA permission before providing supporting information - like a start rating - in case it constitutes advice.
The FCA is taking over regulation of consumer credit from the Office of Fair Trading in April 2014.