The approach in Britain to the regulation of crowdfunding is widely admired around the world, according to the UK Crowdfunding Association (UKCFA and the sector wants to maintain that position globally and be involved in shaping the future outlook of this part of the financial services industry.
Most crowdfunding platforms in the UK are regulated by the Financial Conduct Authority (FCA), and platforms must obtain FCA authorisation before commencing regulated activity.
However, platforms in other countries may be governed by local regulators, and there may also be regulations for non-resident investors.
New rules are expected soon to update the current regulations which date from April 2014. These will come out of a review into the sector carried out in 2016 with the aim of making sure that crowdfunding firms meet all requirements to be ‘clear, fair and not misleading’ with customers.
The UKCFA believes that there needs to be some clarification of the rules to meet recent growth and that must also take into account the need to balance and to promote competition and ensure investor protections are proportionate to the risks.
The current rules are regarded as being robust for equity property crowdfunding investment platforms as under FCA rules investor money is held safely by the authorised firm until the target amount for the crowdfunding investment has been raised, and that the crowdfunding investment platform will be able to substantiate claims made in its investment memorandums.
The FCA has indicated, in an interim report published at the end of 2016, that ‘tougher rules are required to protect investors in crowdfunding platforms and it should be easier for investors to compare crowdfunding sites with each other, or with other asset classes, and this is not always easy due to ‘complex and often unclear product offerings’.
It is not unreasonable from this to expect that the FCA will demand that the crowd property investment platforms consider the best interests of their users by making relevant data more transparent, more consistent, and therefore more comparable.
Andrew Bailey, the FCA’s chief executive, has indicated that it is in the peer to peer lending sector as an additional source of capital that rule tightening is being considered as this is the section that has changed most. ‘What we are trying to do is strike the right balance between enabling innovation and protecting consumers,’ Bailey said.
Bailey has also indicated that stricter regulations are most likely to facilitate tougher rules on wind-down plans, additional requirements or restrictions on cross platform investment and extending mortgage lending standards to loan based platforms.
Investment in property comes with risks as well as the possibility of rewards.
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