The International Organization of Securities Commissions’ (IOSCO) research department has published a staff working paper which presents a review of financial return crowdfunding (FR crowdfunding) as well as key insights on the main implications for users. The paper is the first publication of its kind in tying together a global overview of the crowdfunding industry along with a mapping exercise of the global regulatory landscape.
The staff working paper discusses investor protection issues and whether crowdfunding poses a systemic risk to the global financial sector. The main risks discussed in the paper are:
- default risk;
- platform risk;
- fraud risk;
- illiquidity risk;
- risk of cyber-attack;
- lack of transparency and disclosure risks; and
- the risk of investor inexperience.
Whilst the staff working paper asserts that FR crowdfunding does not currently present a systemic risk to the global financial sector, investor protection issues will still need to be addressed in the future. Further monitoring and research with a view to developing indicators based on hard data would be prudent in conjunction with a balanced regulatory approach. Each regulator though will need to weigh up their concerns individually especially in light of international harmonisation of regulatory requirements.
View Crowd-funding: an infant industry growing fast, 5 February 2014