The Financial Conduct Authority (FCA) is to regulate crowdfunding and peer-to-peer financing early next year.
The FCS is the regulatory authority that oversees financial firms providing services to consumers and is the replacement body to the Financial Services Authority.
The new regulator has published a consultation paper outlining its intended restrictions on traditional crowdfunding methods.
It means products listed on crowdfunding websites, such as the Oculus Rift shown above, may find it harder to source finance.
Limiting investors portfolios
Proposals include firms forced to disclose any potential risks and restricting sales to ‘sophisticated’ investors.
It also intends on imposing restrictions ensuring they do not invest more than 10% of their portfolio.
The regulations will affect anyone wishing to invest using crowdsourcing or anyone hoping to list on a platform.
Speaking to the Independent, Christopher Woolard the director of policy risk and research at the Financial Conduct Authority, said:
“Because so many new businesses fail, and because you might lose all of the money you invested, crowdfunding should only be targeted to those who have experience of high-risk investing, and have enough money to absorb any losses.”
Patronising to investors
Richard Brockbank, co-founder of Investing Zone responded to the announcements:
“We do not agree that participation in equity crowdfunding, and the fantastic tax breaks that go with it, should be limited to high net worth or sophisticated investors.”
“With regards to limiting the amount that can be invested, we feel that this could be patronising to investors who can demonstrate that they know what they’re doing but just don’t happen to be rich.”
The consultation papers can be found here on the Financial Conduct Authority’s website.