The UK financial regulator is to put the phenomenon of “crowdfunding” under the spotlight, setting out rules designed, it says, to give investors clearer information about what they are investing in and prevent abuses.

The FCA said it has also proposed new rules for investment-based crowdfunding, which is already regulated.

“The [FCA] paper makes clear the FCA’s belief that these investments should only be promoted to those who understand the inherent risks or have the financial capacity to cope with any losses,” it said.

“The proposals will make the crowdfunding market more accessible, will help foster competition and facilitate access to alternative finance options while also providing additional consumer protection,” it said.

At present, the regulator said there are different crowdfunding business models. Two of them require FCA regulation: investment-based crowdfunding and loan-based crowdfunding (peer-to-peer lending), of which the latter is a consumer credit activity.

The FCA takes over regulation of consumer credit from the Office of Fair Trading (OFT) in April 2014.

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