The fast-growing crowdfunding sector is being probed by the City regulator to make sure consumers understand the risks.
Within the crowdfunding sector, the Financial Conduct Authority (FCA) regulates peer-to-peer (P2P) lending websites, which match up people with some cash to lend with people or businesses who want to borrow, as well as investment-based websites, on which people may invest in unlisted shares.
The sector has ballooned in recent years. In 2015, an estimated £2.7 billion was invested through regulated crowdfunding, up from £500 million in 2013.
The returns on offer on such websites can be much more attractive in the low-interest environment that someone could expect to get from a traditional savings account on the high street. But the risk to consumers of losing their cash can also be greater – as savers’ money does not have the same protections that it would get in a bank.
Savers have the protection of the Financial Services Compensation Scheme (FSCS) if their bank or building society goes bust.
As crowdfunding has become more of an established way of raising money, the FCA is considering whether the rules need to be changed to reflect its current scale and status and the risks to investors, or whether the current regime deals adequately with the risks.
The FCA is seeking views by September 8 on which areas should be considered as part of an upcoming review into rules around crowdfunding.