Crowdfunding Law & Regulations

Members of St Pauls Chambers have advised in many cases involving crowdfunding.

Crowdfunding is the raising of finances for ventures or other objectives, by inviting large numbers of people and businesses to subscribe small amounts of money. This is usually done over the internet, and these schemes are now generally managed by Platforms such as Kickstarter, Crowdcube or Seedrs.

Crowdfunding Law & Regulations at St Pauls Chambers

Crowdfunding regulation barristers of St Pauls Chambers have advised in many cases involving crowdfunding. For example, whether money that has been held by the platform is ‘client money’ and should therefore be held in a designated client account. These cases required consideration of article 36H of the Regulated Activities Order, and whether or not the overarching agreement was a B2B agreement or P2P agreement (which fall within the definition of client money within the client money rules CASS 7 [Client Asset Sourcebook]).

New Crowdfunding Laws

In 2014, responsibility for the regulation of the consumer credit market passed to the FCA. This included responsibility for regulation of loan based crowdfunding platforms.

The crowdfunding regulations are designed to ensure the following:

• Consumers have access to full and clear information, to allow them to properly assess the risk of potential investments
• Client money is properly protected and firms meet minimum capital requirements
• Proper dispute resolution systems are in place

Non-readily realisable securities are not listed on regulated stock markets and carry significant risk, so new crowdfunding laws and consumer protection rules were introduced in 2014. These laws limit those who can be approached to invest.

Loan-based crowdfunding is also a high growth sector, which again is a highly-regulated sector for both individuals and businesses finding it easier to borrow on a platform such as Lendy and Zopa, than to approach their high-street branch manager.

For more information, don’t hesitate to contact or clerks  via email or by phone.