To invest in an equity based crowdfunding platform, a person has to declare himself/herself either high-net-worth individual - i.e. he/she has been an angel investor for at least six months, or has made a recent investment in an unquoted company, or is earning at least £100,000 a year - or that he/she is not investing more than 10% of his/her net assets. Furthermore, equity crowdfunding portals will be restricted from advertising their services to amateur investors, instead being required to target their marketing only to experienced or high net-worth investors or advised retail clients.
With regards to peer-to-peer lending portals, the FCA has requested that they adopt increased prudential requirements and more transparency. Specifically, P2P lending platforms will need to meet a prudential capital requirement, that requires them to have a certain percentage of loaned funds or a fixed minimum of £50,000 – whichever is higher - to survive possible economic shocks and to be able to continue loan repayment. P2P lending portals will also be required to increase the transparency and clarity levels of their communications (advertisements included), informing investors in a non-misleading way of the risks they run by lending money.
All these new rules will become effective from the 1st of April, but the FCA allows an interim period - until October 1st - where crowdfunding and P2P lending platforms will be able to continue to operate as they have done so far and to prepare themselves to comply with the new rules.
The new regulations have been received by the industry with mixed reactions: some claim that the '10% rule' will kill the innovative potential of equity crowdfunding, while others instead are convinced that these new regulations will help the crowdfunding market to gain more credibility and thus develop quicker.
Platt, R. (2014) FCA unveils long-awaited crowdfunding regulations.Startups.co.uk
Prosser, D. (2014). UK regulatory regime for crowdfunding platforms finalised. Forbes.
(2014) .UK regulatory regime for crowdfunding platforms finalised. Out-Law.
Image credit to: @Doug88888. http://bit.ly/1uF9obK
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.