The FCA has published Policy Statement 14/4: The FCA’s regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other media (PS14/4).
In PS14/4, the FCA responds to feedback it received on the proposals it put forward for the regulation of firms operating online crowdfunding platforms or conducting similar activities in October 2013. The FCA makes a number of points in PS14/4, including those relating to:
- loan-based crowdfunding. The FCA has decided to apply its Principles and core provisions to firms running loan-based crowdfunding platforms. This includes provisions relating to conduct of business (especially around disclosure and promotion), minimal capital requirements, client money protection rules, dispute rules and a requirement to take reasonable steps to ensure existing loans continue in the event of a firm’s closure. However, the FCA has altered its approach to capital requirements after having listened to concerns that its proposed requirements were too high or required an alternative calculation method. The FCA is now taking forward an amended approach that will result in lower capital requirements for some firms in this sector; and
- investment-based crowdfunding and similar activities. Given the risks associated with investing in unlisted securities, the FCA proposed that firms offering such investments on crowdfunding platforms (or using other media) could promote only to certain types of investor. These are: professional clients, retail clients who are advised, retail clients classified as corporate finance contacts or venture capital contacts, retail clients certified as sophisticated or high net worth or retail clients who confirm 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, the FCA also proposed to apply the appropriateness test so that the firm would need to check that the client had knowledge or experience to understand the risks involved.
Following feedback to its earlier consultation, the FCA has replaced the terms “unlisted share” and “unlisted debt security” with a new defined term of “non-readily realisable security” to more clearly describe the intended scope of the proposed rules.
The new rules come into effect on 1 April 2014.
The FCA will review the implementation of the new rules by the end of 2014. It will carry out a full post-implementation review of the crowdfunding market and regulatory framework in 2016 to identify whether further changes are required.
View The FCA’s regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other media – feedback to CP13/13 and final rules, 6 March 2014