The regulation of crowdfunding platforms
The regulation of crowdfunding platforms

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

  • The regulation of crowdfunding platforms
  • Types of crowdfunding
  • Legal issues relevant to crowdfunding platforms
  • FCA review of crowdfunding
  • The investment model
  • The lending model
  • The effect of the Payment Services Regulations 2017 on crowdfunding
  • The donations and rewards model
  • EU regulatory developments in relation to crowdfunding
  • Other regulatory developments in relation to crowdfunding

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, 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.

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 UK, the financial services regulatory regimes for corporate finance business and investment funds both tend to shape the structure of investment-based crowdfunding platforms. As both regimes have not traditionally been used to facilitate the participation of large numbers of retail investors, there