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FCA new crowdfunding regulations due in 6 weeks! The 4 key changes

FCA new crowdfunding regulationsThe FCA will soon announce their regulations for  equity crowd funding, peer to peer lending and the electronic marketing of securities and investments.  What changes can the market expect and how will it impact existing platforms and new entrants?

The  FCA  proposes  the  following  four key changes: 

  1. To  limit  the  direct  offer  financial  promotion  of  unlisted  shares  or  debt  securities  (including  websites)  by   firms  to  one  or  more  of  the  following  types  of  retail  client:     
    • Those  who  are  self  certified  or  self  certify  as  sophisticated investors.
    • Those  who  are  certified  as  high  net  worth  investors.
    • Those  who  confirm  that,  in  relation  to  the  investment promoted, they  will  receive  regulated  investment  advice  or investment management  services  from  an  authorised  person (i.e.  firms  will  have  to  engage  with  financial  advisers).
    • Those  who  certify  that  they  will  not  invest  more  than  10%  of their net  investment  portfolio  in  unlisted shares  or  unlisted  debt  securities (excluding  their  primary  residence,  pensions  and  life  cover).  Where   advice  is  not  provided,  firms  must  conduct  an  appropriateness  test before  selling  clients  promotions  for   unlisted  equity  or  debt securities.
  2. The same criteria used for unregulated collective investment schemes will be brought in. Where crowdfunding platforms allow investment in units in unregulated collective investment schemes the existing marketing restrictions will apply.
What is interesting in these proposed changes is that investors who do not self certify as high net worth or a sophisticated investor can still invest as long as risk is explained and they self certify that they will not invest more than 10% of their net investment portfolio.  This is similar to the proposed rules in the United States JOBS act.  It would open the market to a much wider audience than equity crowd funding is currently being marketed to. It also helps start up businesses as their natural audience of friends, family, existing customers and suppliers are not necessarily going to be wealthy or experienced investors.

  1. The  FCA  warns  that  although  certain  platforms  will  simply  serve  as  an  introduction  to  an  investment,   where  they  provide  a  star  rating  or  award  or  other  incentive  system,  they  will  need  to  consider  whether   they  are  advising,  in  which  case  they  will  need  to  apply  for  FCA permission.
This will reduce the number of affiliate and spam-marketing sites set up to send traffic to platforms.  There will be a place for this advisory service but in order to protect the credibility of the market place, they will they need to be tightly controlled.

  1. Investment-based crowdfunding: the FCA proposes limits on the ability of firms to promote these platforms and a requirement that, where no advice has been provided, firms check that customers understand the risks involved.

This is in direct reference to fears, the FCA have, that platforms will market their investments to vulnerable investors.   As outlined above, they are trying to widen the investment pool as wide as possible.  What they are hinting at here are the hurdles that the crowd funding sites will have to put in place to ensure full disclosure of information by the platform takes place and that full understanding is assessed. 

In discussions with the FCA, Sapphire Capital's legal advisors have indicated that the FCA will watch closely how the equity crowd funding sites behave.  The transparent nature of these investments and sites means they can see and act very quickly when they believe the rules are being broken, and shut things down. 

It is therefore crucial that those planning to start a crowd funding platform or raise money on one take the right advice.  At Sapphire Capital Partners LLP we see crowd funding, combined with EIS and SEIS, as being an effective way to attract investors with the tax benefits and provide reassurance that the investment has been properly structured and approved.

Please feel free to get in touch for more information - 

Read our other blog articles relating to crowdfunding such as: The top ten crowd funding fundamentals 

Michael McDowell
Michael McDowell
Michael focuses on all things crowdfunding - he is a wealth of knowledge on this subject and is happy to give to advice to anyone interested! Contact him by email at 

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