Entrepreneurs must give clearer information when raising funds through peer-to-peer lending and crowdfunding, according to new rules set out by UK regulator, the Financial Conduct Authority (FCA).
The new rules aim to give people access to ‘fair, clear information’ when using crowdfunding platforms.
The FCA said between 50 per cent and 70 per cent of start-ups fail in the early years and is now proposing that inexperienced investors will have to guarantee that they will not invest in unlisted businesses more than ten per cent of their portfolio.
Christopher Woolard, director of policy, risk and research at the FCA, said: “We want to ensure that consumers are appropriately protected – but not prevented from investing.
“We have been careful to listen to feedback from the market and the rules provide consumer protection, whilst allowing businesses to continue to have access to this innovative method of funding.”
Last year, over £28m was raised through crowdfunding, six times more than 2012. Loan-based crowdfunding, mainly peer-to-peer lending, will be regulated by the FCA from April.
Luke Lang, founder of equity crowdfunding platform, Crowdcube, said: “We are delighted that many of the measures finalised by the FCA are already in line with how Crowdcube operates today.
“It is critical that equity crowdfunding is more accessible to everyday investors, and the FCA’s confirmed policy on equity crowdfunding achieves this.
“The UK leads the world in equity crowdfunding and these changes will help build market confidence, ensuring that the crowd remains in crowdfunding and the industry can continue to flourish.”
The new rules will provide the same level of protection to investors whether they engage with firms online, or offline as a result of telephone selling or direct marketing.
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