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Financial Services analysis: how does the Financial Conduct Authority (FCA) plan to regulate increasingly popular crowdfunding platforms? Bill McCaffrey, partner and head of consumer finance at CMS Cameron McKenna, discusses the FCA's attempts to catch-up with this new funding model.
Press Release: Financial Conduct Authority outlines how it will regulate crowdfunding
A proposal on new rules providing clearer information to consumers who want to invest in businesses via crowdfunding has been published by the FCA. Crowdfunding is a solution for individuals, organisations and businesses to raise money. It involves a number of people pooling money through a website, often called a platform. Peer-to-peer lending and equity investment based crowdfunding are the two investment forms requiring regulatory oversight. The FCA is issuing this consultation paper as it is taking over the regulation of the consumer credit market from the Office of Fair Trading (OFT) in April 2014.
What are the key features to consider when discussing crowdfunding?
There are two distinct forms of crowdfunding platforms:
For ease of reference we shall refer to the entity in search of funding under both structures as the 'borrower'.
The former is known as 'investment-based crowdfunding' and firms operating the platforms are likely to require the FCA permission of 'arranging deals in investments'--they are therefore already within the scope of regulation. However, the FCA recognises that the rulebook was not designed for such activities and therefore certain revisions will be required.
The latter is 'loan-based crowdfunding'. Operating such platforms does not currently require any FCA permissions, and while the OFT does operate a licensing regime for debt administration activities, a number of the Consumer Credit Act 1974 (CCA 1974) provisions do not apply to such agreements and investor protections.
The FCA has therefore sought to increase its regulation of
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