Posted by Claus Andersen, Partner
On 1 September 2016 Withy King LLP merged with Royds LLP. The trading name for the merged firm is Royds Withy King. All content produced prior to this date will remain in the name of the firms pre-merger.
FCA publishes guidance on regulating crowdfunding
You may recall our blog on crowdfunding in which we discussed how crowdfunding was increasingly becoming an alternative to bank lending particularly in the tech industry.
Since our blog the Financial Conduct Authority (FCA) has been looking into the regulation of crowdfunding.
Christopher Woolard, the FCA’s director of policy, risk and research, has said:
“Consumers need to be clear on what they’re getting into and what the risks of crowdfunding 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.”
Although there are a number of different crowdfunding business models only two require FCA regulation, namely investment-based crowdfunding and loan-based crowdfunding (peer-to-peer lending).
The FCA is due to take over regulation of consumer credit from the Office of Fair Trading (OFT) in April 2014.
Key proposals for loan-based crowdfunding include:
• Information about the platform must be clearly presented and easy to find so customers know who they are dealing with.
• All communications must be presented so that the intended customer understands them. Platforms must not downplay risks or warnings.
• Platforms must have resolution plans in place so that in the event of the platform collapsing, loan repayments can continue to be collected so those lending to firms do not lose out.
• Any promotions must be fair, clear and not misleading. Promotions that are not can be banned by the FCA.
Key proposals for investment- based crowdfunding include:
• In the retail market, firms can only promote these platforms to:
– sophisticated investors, high net worth investors, retail clients who receive regulated investment advice or investment management services from an authorised person; or
– retail clients who certify that they will not invest more than 10% of their portfolio (i.e. excluding their primary residence, pensions and life cover) in unlisted shares or unlisted debt securities.
• For non-advised clients, firms must assess appropriateness before allowing them to invest through the platform.
• The restrictions the FCA has placed on the marketing of unregulated collective investment schemes, or UCIS, will apply to platforms that offer these investments.
If you would like any information or have any queries in relation to this blog please contact Claus Andersen, Partner – Corporate and Commercial on 020 7583 2222 or firstname.lastname@example.org or Sonia Mohammed email@example.com.
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