Financial Conduct Authority to announce crackdown on crowdfunding and peer-to-peer lending
The Financial Conduct Authority will today announce a new crackdown on the crowdfunding and peer-to-peer lending industry, which is expected to top £1bn by 2016.
There will be stronger protection for investors and tighter regulations for companies seeking cash through crowdfunding.
People who lend money to businesses through peer-to-peer websites will be given of a cooling-off period. Lenders – and small firms who borrow from them – will have 14 days to withdraw from deals with no penalty.
The watchdog will also force crowdfunding firms to advertise responsibly, and only promote offers to sophisticated investors.
Christopher Woolard, the director of policy risk and research at the Financial Conduct Authority, said: "Because so many new businesses fail, and because you might lose all of the money you invested, crowdfunding should only be targeted to those who have experience of high-risk investing, and have enough money to absorb any losses."
Under the proposals, which will come into force next April, ordinary investors will have to certify that they will not invest more than a tenth of their portfolio in unlisted shares or unlisted debt securities.
The regulator is concerned by the number of new firms that fail, between 50 and 70 per cent. It points to an ethical soap-maker Bubble & Balm, which raised £75,000 through crowdfunding but collapsed earlier this year.
The growing success of peer-to-peer is seen in UK small business lender Funding Circle, which today announced it is launching in the US, just three years after setting up.
The business is joining forces with San Francisco lender Endurance Lending Network in a deal backed to the tune of $37m (£23m) by European venture capitalist Accel Partners, which has previously backed Facebook, Spotify and Dropbox.
Harry Nelis, an Accel partner who will join the board of Funding Circle, said: "We see the potential to build the category-defining company in online business lending."
The world's first peer-to-peer lender, Zopa, said yesterday that it has lent £400m to UK borrowers since launch in 2005, including £100m in the last six months alone.
* In June, Scottish pub company BrewDog raised more than £1m from investor fans of its Punk IPA beer in just 24 hours after launching a crowdfunding scheme to fund expansion plans.
* Earlier this year Nicola Horlick attracted £150,000 in a day for her latest business venture, a fund management firm called Glentham Capital.
* Meanwhile, Kevin McCloud, presenter of television's Grand Designs, raised £1.4m for his firm Hab Housing, which aims to build well-designed but low-cost housing.