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March 27th 2014 / BY: Wisteria

FCA publishes new regulations for Crowdfunding

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. It is a popular way to raise finance for various purposes; these may include business ventures, projects and activities. This gives investors various opportunities and allows contributors to pool funds on an online platform to raise the required amount. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised. It is typically done through the internet.

The new Financial Conduct Authority (FCA) regulations focus on investment-based and loan-based crowdfunding and the FCA have implemented separate rules to govern these two main forms of crowdfunding. The new FCA rules aim to ensure that crowdfunding platforms only communicate with investors who understand the risks involved with their investments, sophisticated and high-net worth individuals, individuals who have received investment advice, and those who have certified that they will not invest more than 10% of their net assets in unlisted securities.

Loan-based crowdfunding platforms must ensure that customers have access to clear information, which will allow them to understand the risks involved. They will also be subject to prudential requirements so that investors will have some protection in place if the platform gets into difficulties. For investment-based crowdfunding, FCA regulations tailor the existing rules rather than create new ones. Investment crowdfunding allows individuals to invest in small businesses, revolutionizing the way small businesses receive funding.

crowdfunding

Crowdfunding gives small businesses and individuals the chance to succeed by showcasing their businesses and projects a significantly larger pool of global investors; it can also help to facilitate the continued growth of more established companies. Crowdfunding in the UK is currently worth approximately £360 million. The rules provide the clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this different and innovative source of funding. They also provide credibility to the crowdfunding industry as a whole. Crowdfunding is an increasingly effective way to jumpstart a business with much needed cash.

For the full FCA reports please visit: www.fca.org.uk

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