The FCA has confirmed plans to restrict the promotion of investing in crowdfunding.
In final rules for the crowdfunding sector published last week, the FCA confirmed proposals issued in October to restrict the promotion of these investments to clients who are able to fully understand the risks.
Investment-based crowdfunding can be promoted only to sophisticated or high-net-worth investors, retail clients who are advised and non-advised clients who are investing 10 per cent or less of their net investible assets.
The regulator says this is necessary given the significant risks investors face when putting money into unlisted securities that are hard to value independently or sell on a secondary market.
The FCA had also proposed that firms must hold a minimum amount of regulatory capital, but says many respondents to the consultation believed the requirements were too high.
It has therefore amended these proposals, meaning some firms will have lower capital requirements.
FCA director of policy, risk and research Christopher Woolard says: “We want to ensure consumers are appropriately protected – but not prevented from investing.
“We have been careful to listen to feedback from the market and the rules provide consumer protection while allowing businesses to continue to have access to this innovative method of funding.”
The rules come into force on 1 April and the FCA says it will carry out a full post-implementation review of the crowdfunding market and regulatory framework in 2016 to identify whether further changes are needed.
Hudson Green & Associates principal Ian Green says: “The FCA is absolutely right to impose these limitations.
“Most consumers do not have the necessary knowledge to invest more than 10 per cent of their assets in this type of investment.”