The crowdfunding market in the UK has continued to grow at a rapid pace since the introduction of new investor protection measures in 2014, according to a new report.
The UK Financial Conduct Authority (FCA) Tuesday published a preliminary review of crowdfunding in the UK, which looks at the market since new rules for this space took effect in April 2014.
The report says that fundraising on both loan-based and investment-based crowdfunding platforms tripled in 2014.
According to the report, the amount raised on investment-based crowdfunding platforms totalled approximately £84 million ($158.3 million), up from £28 million ($14.9 million) in 2013.
Amid this growth, the FCA also stepped up its supervision of investment-based crowdfunding platforms, which, it reports, resulted in a number of regulatory interventions to ensure consumer protection.
“For example, this means ensuring that only appropriate types of customers were allowed to invest, and that financial promotions are clear, fair and not misleading, with regards to both the nature and performance of the assets invested in and the exit opportunities for investors,” it says.
A similar approach was also taken with loan-based crowdfunding platforms, the FCA notes. However, in that sector it also visited firms to assess their governance, management and controls. “Overall, we were encouraged by what we found during our visits, including a good understanding of credit risk and robust anti-money laundering and Know Your Customer (KYC) checks,” it says.
The FCA says that it’s particularly looking to see that platforms are disclosing all relevant information to potential investors, and that this information is not misleading. Additionally, it notes that there’s some evidence that negative comments are being deleted from investor forums on some websites, which “may lead to situations where relevant risks are overlooked.”
The FCA also says that it conducted a specific review of crowdfunding websites last year, which found problems with most of the websites in the review. The common issues identified were: a lack of balance; insufficient, omitted or the cherry-picking of information; downplaying important information such as risk warnings.
“Firms need to provide investors with appropriate information, in a comprehensive form, so that they are reasonably able to understand the nature and risks of the investment and, consequently, to make investment decisions on an informed basis,” it says.
The report also reveals some basic data about the fledgling market. It found that the average amount raised through equity-based crowdfunding during the year was approximately £199,000 ($375,000). It also reveals that the average age of equity crowdfunding investors is 40, and the average portfolio size is £5,414 ($10,202).
Additionally, 38% of equity crowdfunding investors surveyed were classified as professional, or high net worth, individuals, the report says. Whereas the other 62% described themselves as retail investors with no previous experience of early stage or venture capital investment.
Most of those who have invested are doing so to seek a financial return, the report says, with few reporting that they came to invest in a family member or friend, or to support a local business.
The report concludes that it is still early days for the crowdfunding phenomenon, but that, at this point, the FCA sees no need to change its regulatory approach to crowdfunding, either to strengthen consumer protections, or to relax the requirements that apply to firms.
“Over the last year we’ve seen the extraordinary growth of peer-to-peer and equity-based crowdfunding continue. Our aim, with the rules we put in place in April, is to ensure that the growth we’re seeing comes with appropriate investor protection in place,” noted Christopher Woolard, director of strategy and competition at the FCA.
In Canada, securities regulators are currently considering the adoption of several different types of prospectus exemption to facilitate crowdfunding. Saskatchewan’s Financial and Consumer Affairs Authority (FCAA) was the first Canadian regulator to adopt a crowdfunding exemption back in 2013.