The UK's Financial Conduct Authority (FCA) has today published a letter outlining the harm that crowdfunding business models are most likely to cause to consumers and markets, and strategies to tackle them.。

In particular, the FCA states that investment-based crowdfunding platforms should pay attention to the following points:

• Enhanced Risk Warning
• Prohibition of induced investment
• introduction of positive friction, including cooling periods, and
• Improve customer classification and appropriateness testing。

The FCA expects companies to make any necessary changes to meet their expectations and improve consumer outcomes.。

On September 12, 2023, the FCA issued a policy statement on the introduction of a threshold for companies that approve financial promotions.。Businesses should heed all necessary advice and carefully consider whether to approve promotions within the scope of this new gateway。Given the activities that crowdfunding platforms engage in, most crowdfunding platforms may need to apply for approval for financial promotions。This is because they are likely to approve financial promotions prepared by unauthorized persons without the need to apply for an exemption.。

Businesses must submit applications for permission to approve financial promotions by February 6, 2024 to take advantage of the transitional arrangements.。Businesses that apply before that will be able to continue to approve promotions until their application is adjudicated, at which time their ability to approve promotions will be revised based on the results of the application。

If the enterprise decides to approve financial promotions within the gateway in the future (i.e. after the end of the application period), it may submit a license change application in the usual way.。However, they will not be able to approve financial promotions (except those within the scope of the exemption) until their application is adjudicated.。From February 7, 2024, companies that have not applied to the gateway during this period will not be able to approve financial promotions (except for exemptions).。

Finally, the FCA wants crowdfunding platforms to fully fulfill their consumer responsibilities, which requires them to put the needs of consumers first and provide a good customer experience。

The FCA's regulatory priorities are aligned with the outcomes of "consumer responsibility," such as:

Consumer understanding: Businesses need to ensure that investors fully understand all aspects of their investments (e.g., their inherent illiquidity, total capital loss risk, lack of FSCS protection) and the extent of due diligence performed by the platform.

Products and Services: Companies are required to exercise an appropriate degree of due diligence on the securities they distribute before marketing them to investors to ensure that investors are able to select investments with risk profiles that meet their needs and avoid foreseeable harm to them.

Price and value: fees and charges to investors and fundraisers must be transparent and fair; companies must ask themselves how they apply price and value results to them, including what management information should be collected to assess their performance in the field。