The regulation of crowdfunding platforms—essentials

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • The regulation of crowdfunding platforms—essentials
  • Scope of this Practice Note
  • Types of crowdfunding
  • Legal issues relevant to crowdfunding platforms
  • FCA review of crowdfunding
  • FCA Call for input and feedback statement
  • Consultation paper, dear CEO letter and policy statement
  • The investment model
  • Public offers
  • Regulated activities—share issues
  • More...

The regulation of crowdfunding platforms—essentials

Scope of this Practice Note

This Practice Note discusses the regulatory issues faced by crowdfunding platforms from a financial services perspective. It should be read in conjunction with the Financial Services and Markets Act 2000 (FSMA 2000), secondary legislation and regulatory rules and guidance, such as provisions in the Financial Conduct Authority (FCA) Handbook and the FCA’s webpage dealing with crowdfunding. This Practice Note also briefly discusses the initiatives taken at EU level in relation to the regulation of crowdfunding which is discussed further in Practice Note EU Regulation of crowdfunding—the ECSP Regulation and the MiFID II Amending Directive.

Crowdfunding (sometimes called 'crowd sourcing' or 'crowd financing') works on the premise that persons seeking funding, such as entrepreneurs, showcase projects or companies on an internet platform and members of the public provide funding through the platform. There is no limit to the amount of individual contribution but, unlike more established methods of fundraising, many platforms permit participants to contribute as little as £10. Typically the entrepreneur will be required to specify a target amount and cut-off date, and will not receive funding unless this target is reached.

Types of crowdfunding

There are three broad types of crowdfunding, each distinguishable by the return for the funder:

  1. Investment model—individuals make investments in return for a share in the profits or revenue generated by the company/project

    In the

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