FCA to regulate crowdfunding

Websites allowing private investors to put money into startups and early-state businesses will be more accessible to the public from April, the FCA has announced.

The regulator said it would tailor its rules around the growing trend rather than creating new ones. This will mean advisers will only be able to recommend such sites to experienced and higher-value investors or those who do not plan to invest more than 10 per cent of their portfolio.

Even in the face of economy-stimulating schemes like EISs and VCTs that are designed to help companies get off the ground and grow, they are still reporting difficulties in generating cash for expansion.

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Research by think-tank Nesta in conjunction with the universities of Cambridge, California and Berkeley showed that in the past year alone, equity-based crowdfunding has grown by an estimated 618 per cent and peer-to-peer business lending by 211 per cent.

According to new figures from FundingKnight, 66 per cent of small and medium-sized enterprises (SMEs) say they need funding to grow and 63 per cent of business owners have either already used crowdlending or would consider doing so. Of businesses surveyed, 38 per cent said they believed alternative methods of funding such as crowdlending will be the future.

While it is a growing trend, even with the FCA’s new powers indicating advisers might consider it for clients, it still remains a niche area of advice.

Justin King, chartered financial planner at MFP Wealth Management contests the relevance of crowdfunding and its use at an individual advice level, but believes it is a useful avenue for advisers to know about for corporate advice.

“I know of a few deals that have gone through and I know people who have supported stuff that they know personally, but I think most of the deals are going to be at the outer limits of what we do. I don’t think it will be something advisers will deal with, either,” he said. Instead he has found it something important to consider when advising SMEs on how to do commercial borrowing without relying on banks.