(qlmbusinessnews.com via telegraph.co.uk – – Tue, 13 Dec, 2016) London, Uk – –
Crowdfunding platforms need tougher rules and restrictions in order to protect investors, the Financial Conduct Authority has said.
The financial watchdog has raised concerns about loan-based businesses, which allow borrowers and lenders to join up without involving banks, and investment platforms, through which members of the public invest in a business or campaign directly.
The FCA said it was difficult for investors to compare crowdfunding investments with other assets given it was often unclear exactly what was being offered.
As a result, investors struggle to assess the risk and returns of giving their money to crowdfunding platforms, and there were some conflicts of interest that were not being managed properly.
Additionally, crowdfunding schemes did not always meet the FCA’s requirements to be “clear, fair and not misleading”, it said.
Firms’ plans for winding down in the event of their failure were also insufficient to allow for repayment of loans, it warned.
According to research by AltFi Data released last month, there have been just five successful ‘exits’, where investors’ capital was returned plus a premium, out of 955 funding rounds across 751 companies and six platforms analysed.
The FCA said it would consult on strengthening rules for wind-down plans, and tighten restrictions on cross-platform investment.
For loan-based platforms, the FCA said it would look to impose standards currently applied to mortgage lending in order to more tightly monitor the conditions in which loans are made.
Andrew Bailey, chief executive of the FCA, said: “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. Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas.”
Mr Bailey said the FCA planned to consult next year on new rules to address the problems it had found.
It is the second market intervention by the FCA in a week, after it announced major plans to crack down on spread betters amid fears ordinary investors are losing money. Shares in spread-betting firms – which sell so-called contracts for difference that allow people to trade on price movements in financial markets – slumped after the announcement.
By Rhiannon Bury