What is the 10% Crowdfunding Rule? Reply


Crowd and piggy bank

Crowdfunding is a way in which people and businesses (including start-ups) can try to raise money from the public, to support a business, project, campaign or individual.

The term ‘crowdfunding’ applies to several internet-based business models, only some of which we regulate.

The Financial Conduct Authority don’t regulate:

  • Donation-based crowdfunding: people give money to enterprises or organisations whose activities they want to support.
  • Pre-payment or rewards-based crowdfunding: people give money in return for a reward, service or product (such as concert tickets, an innovative product, or a computer game).

The FCA do regulate:

  • Loan-based crowdfunding: also known as ‘peer-to-peer lending’, this is where consumers lend money in return for interest payments and a repayment of capital over time.
  • Investment-based crowdfunding: consumers invest directly or indirectly in new or established businesses by buying investments such as shares or debentures.

Further details on their website

The Financial Conduct Authority is proposing that starting from this year inexperienced investors in equity schemes will have to certify that they will not invest more than 10% of their portfolio in unlisted businesses.

Firms that run the website platforms say the rules are too tight and will put off potential investors.

Barry James, founder of The Crowdfunding Centre, says: “Make no mistake, the infamous 10% rule – however it’s dressed up – does just that: it takes the crowd out of equity crowdfunding.”

Despite the crackdown, investors who lend to small companies will not be covered by the Financial Services Compensation Scheme which protects investors if they are mis-sold an investment or if the company they invest in goes into liquidation.

The FCA believe there is high risk that consumers could suffer losses from peer-to-peer lending.

Is the risk too high? would you invest?

steve@bicknells.net

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