Separately, the EU Commission on 27 March published a communication entitled “Unleashing the potential of crowdfunding in the European Union”, setting out its proposals for future action in this area.
FCA Policy Statement 14/4
The FCA announced in its Policy Statement that it had decided to apply its Principles and core provisions to firms operating loan-based crowdfunding platforms, including provisions relating to conduct of business (especially around disclosure and promotion), minimal capital requirements, client money protection rules, dispute rules, as well as a requirement to take reasonable steps to ensure existing loans continue in the event of a firm’s closure.
Given the risks associated with investing in unlisted securities and to ensure a level playing field, the promotion of investment-based crowdfunding platforms (and of “non-readily realizable securities) will be restricted to certain categories of retail investors only, including those who:
- are advised;
- have been certified as being either “sophisticated” or “high net worth”; or
- have confirmed that they will not invest more than 10% of their net investible assets in these products.
Where no advice is given to the retail client, an appropriateness test would also need to be applied.
The regulator has sought to reach a balancing act, with Christopher Woolard, director of policy, risk and research at the FCA, saying that “[w]e want to ensure that consumers are appropriately protected – but not prevented from investing”.
Firms which held a valid OFT license on 31 March, upon notifying the FCA and paying a fee, were to be granted an “interim permission” allowing them to carry on those consumer credit activities for which they are licensed until they become fully authorized (by 1 April 2016 at the latest). Certain of the above rules will not apply until 1 October 2014, while minimum prudential requirements will not apply until the firm is fully authorized.
The FCA is to review the implementation of the new rules by the end of 2014 and will carry out a full review of the crowdfunding market and regulatory framework in 2016 to identify whether further changes are required. The regulator maintains a crowdfunding landing page here.
EU Commission communication on “Unleashing the potential of Crowdfunding in the European Union”
The EU Commission has also set out its proposals for future action in this area in a Communication of 27 March, including to establish a new expert group, the European Crowdfunding Stakeholder Forum to provide advice and expertise to the Commission, particularly with regard to establishing a “quality label” to promote transparency and best practice as well as build trust with users, and on possibilities for matched (public and private) financing (this was established in June 2014).
The Commission also published related Frequently Asked Questions, as well as a summary of responses to its October 2013 crowdfunding consultation. Recognizing that the total amount raised for all forms of crowdfunding in Europe in 2013 is forecast to be around €1 billion, the Commission noted that the single market for crowdfunding may not be working as well as possible; particularly the lack of information about applicable rules, as well as the high cost of getting authorized in member states.
How can we help?
We have assisted a number of Crowdfunding platforms with their authorizations by the FCA in its new role as UK consumer credit regulator, including assisting firms to put in place the necessary compliance infrastructure, as well as helping prepare the applications themselves.