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FCA outlines plans to clamp down on crowdfunding
by David Campbell on Oct 24, 2013 at 10:36
The booming crowdfunding sector could receive its sharpest shake-up in its short history as UK regulators propose rules which would require greater capital to be held by lending platforms.
The sector is currently regulated by the Office of Fair Trading, but responsibility will be passed to the Financial Conduct Authority (FCA) in April 2014.
Ahead of the handover, the FCA has proposed a series of regulatory changes, including greater ‘prudential requirements’ and contingency plans ensuring payments are received if a platform closes.
The rules would also change the way that crowd-funded investments, which are currently under the FCA’s remit, are regulated, limiting the ways in which they can be marketed to.
‘These investments should only be promoted to those who understand the inherent risks or have the financial capacity to cope with any losses,’ said the FCA in a statement.
That would limit their marketing to ‘sophisticated investors’ or to retail clients via FCA-authorised advisers and managers.
‘Consumers need to be clear on what they’re getting into and what the risks of crowdfunding are,’ said FCA director of policy, risk and research Christopher Woolard.
‘Our rules provide this clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this innovative source of funding.’
Retail investors would be limited to investing no more than 10% of liquid assets in a reflection, the FCA said that between 50% and 70% of new businesses resulted in a 100% loss of capital.
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