Name
Global FinTech Guide
Country _ Name
United Kingdom
SectionTitle
Crowdfunding / crowdinvesting / crowdlending
Body
FinTechs belonging to this category operate crowdfunding, crowdinvesting and crowdlending platforms on which money is raised to invest in various projects, mainly start-up companies and real estate projects.

Crowdfunding is not a defined financial service, but generally used to describe donation-based crowdfunding (the investor donates the money to the project), reward-based crowdfunding (the investor receives an often symbolic consideration for his investment), equity-based crowdfunding (crowdinvesting: the investor participates in the profits of the financed project or acquires shares or debt instruments) or lending-based crowdfunding (crowdlending: the investor is reimbursed at the end of the project with or without interest).

Introduction

Attitude of the country towards crowdfunding, crowdinvesting and crowdlending platforms

The crowdfunding market has grown rapidly in the UK in recent years, although the momentum in growth has reduced. Although the FCA supports the development of the crowdfunding market, with the potential to improve competition and provide alternative sources of finance, it recognises that loan-based and investment-based crowdfunding are high risk activities and have warned consumers of the risk of losing their money (https://www.fca.org.uk/crowdfunding). 

In July 2021, the FCA wrote to equity crowdfunding firms to warn them that it considers that too many consumers are still investing in inappropriate high-risk investments which do not meet their needs. The FCA has also given similar warnings to Loan based Peer to Peer (“P2P”) crowdfunding platforms.

The collapse of several crowdfunding platforms has led to greater regulatory scrutiny. However, this may merely reflect the growing maturity of a relatively new and innovative market sector. 

Legal affairs

Obligations and requirements to provide crowdfunding, crowdinvesting and crowdlending platforms described above

Investment-based and loan-based crowdfunding (peer-to-peer) lending are regulated activities under FSMA which require FCA authorisation.

Donation-based and rewards-based crowdfunding are not expressly regulated, although Payment Services activities in connection with these platforms may be regulated.

Investment-based crowdfunding platforms are regulated in essentially the same way as asset and portfolio management platforms, requiring FCA permissions for arranging deals in investments, and possibly advising on investments, safeguarding and administering investments and receiving or holding money for clients. Please see above regarding application fees, etc.

Peer-to-peer lending platforms fall within their own, specific regulatory category of operating an electronic system in relation to lending. The FCA application fees for authorisation are £5,000. The capital requirements for a Peer-to-peer lending platforms vary by reference to various factors, and may be anything from around £5,000 to into the hundreds of thousands of pounds. 

Firms must also be aware that the restrictions on financial promotion under FSMA may also be applicable.

The rules applying to crowdfunding include: 

  • Only targeting clients who are high net worth or sophisticated investors, or who fall within other exempt categories.
  • Clients confirming that they will invest less than 10% of their net assets in a specific security.

Other regulations which apply include the consumer protection rules, anti-money laundering laws, and data protection provisions if personal information is being received. For crowdfunding firms seeking to issue shares, the Prospectus Rule

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