Crowdfunding is establishing itself as a new way to raise finance using either an investment or loan based peer-to-peer structure (P2P).  Whilst the regulator is keen to support innovation in the market, they also remain concerned about potential customer detriment which brings some interesting compliance challenges for firms.

P2P and Investment Crowdfunding explained

There are two main types of regulated crowdfunding:

  • Investment-based crowdfunding – Investors invest in exchange for a number of shares or debentures. The investor hopes to make a return with the company on exiting. This can include a trade sale, an IPO or a share buyback.
  • Loan-based crowdfunding – Also called peer-to-peer (P2P) lending. Investors lend money, (normally to individuals or business borrowers) in the expectation of a financial return through interest payments and the repayment of capital over time.

Crowdfunding platforms may offer higher returns than those available from other financial products, though there are usually greater risks.


Any firm wishing to undertake regulated crowdfunding must be authorised.  The authorisation process can be complex and firms should expect a good level of scrutiny from the regulator.  Some of the key requirements are that firms:

  • Draft a detailed regulatory business plan setting out their planned activities, budget and resources;
  • Have a detailed understanding of the regulated activities they will undertake and the compliance requirements;
  • Have staff who have adequate knowledge and experience of regulation;
  • Have adequate financial resources; and
  • Have a website which is at a fairly advanced stage of development – the FCA may ask for a demonstration of how it works.

Once authorised

Once authorised, firms must ensure they not only comply with the regulatory requirements but also understand the direction of travel from the regulator.  In December 2016 the FCA published a feedback statement setting out interim feedback following its review of the crowdfunding market.  They identified a wide range of different issues.  Following on from this, they have published a consultation paper with their proposals which include:

  • Ensuring investors receive clear and accurate information about a potential investment and understand the risks involved;
  • Ensuring investors are adequately remunerated for the risk they are taking; and
  • Having transparent and robust systems for assessing the risk, value and price of loans, and fair and transparent charges to investors.

Firms therefore cannot take their foot off the pedal once authorised.  We have experience in the crowdfunding/P2P market and are well placed to help you both understand what is required and test that you are meeting those requirements.

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