This policy document (“Policy”) sets out the standards to which the UK Crowdfunding Association (“UKCFA”) holds its members (“Members”) and supporters (“Supporters”). Although some Members and Supporters are also required to comply with certain financial legislation and regulation, this Policy and the accompanying Code of Conduct (“Code”) are designed to ensure that all Members and Supporters (in so far as Supporters operate within the crowdfunding market) operate on the basis of the same core standards. This Policy and Code have been created by the Directors under Article 13 of UKCFA’s Articles of Association and is intended to come into effect immediately following UKCFA’s AGM held on 16 June 2015.
Crowdfunding has the potential to revolutionise the way projects and businesses are funded, both in the UK and internationally, by providing a more direct, transparent and democratic form of finance than the more traditional forms of donation and investment. This Policy supports this potential by promoting the standards to which the crowdfunding industry must aspire, if it is to be a major force for positive change in the financial services sector and beyond.
In this Policy the term “investment” is used to cover debt, loan and equity crowdfunding. This is where users invest money with some intention or desire of making a return on their investment. Whilst most investment crowdfunding falls under regulation, some models (for example, which offer withdrawable shares of Industrial and Provident Societies) are exempt from regulation. The terms “donations” and “rewards” are largely interchangeable and refer to crowdfunding where there is no intention or desire for money to be repaid; although the user may receive some form of reward or recognition. Users of crowdfunding platforms, whether they are investors or donors, are referred to as “users”.
1. Keeping the “crowd” in crowdfunding
a. The UKCFA supports a legal and regulatory framework that is inclusive and enables people to invest in or donate money to businesses or projects of their choice.
b. The UKCFA believes that any person should be able to make their own decision whether to invest in or donate to any crowdfunding business or project, provided he or she fully understands and accepts the risks involved.
2. The regulatory environment for crowdfunding
a. The UKCFA supports the regulator’s position that rewards and donations crowdfunding falls outside the scope of financial regulation.
b. The UKCFA supports the regulator’s position that investment crowdfunding should be regulated in a manner which is proportionate to its risks.
c. The UKCFA supports the regulator’s position that crowdfunding which satisfies statutory exemptions should be considered exempt from financial regulation.
3. Regulatory authorisation
a. Process: The UKCFA believes that the authorisation process can create unnecessary barriers to entry and so restrict effective competition and innovation. The UKCFA seeks greater clarity and transparency during the authorisation process, including information about how the process works, what is required, and how long it will take.
b. Costs and risks: The UKCFA is concerned that the complexity and uncertainty of the authorisation process can require crowdfunding platforms to hire external consultants and lawyers to a greater extent than in other sectors. This adds to the cost and risk of the authorisation process.
c. Industry Liaison: The UKCFA believes that there should be an industry liaison specialising in alternative finance at a senior level within the regulator. The UKCFA welcomes the introduction of the regulator’s Innovation Hub.
4. A focus on consumer protection
a. The UKCFA recognises that all crowdfunding platforms have a responsibility towards their users. For example, platforms should ensure that users’ instructions are correctly implemented, that money safely reaches its destination, and that data is secure.
b. The UKCFA believes that crowdfunding platforms should, whether subject to regulation or not, ensure users are made aware of the relevant risks of using the platform.
5. Operational standards and risk
a. The UKCFA believes that all crowdfunding platforms should comply with a set of operating principles which minimise the risk of an investor suffering a loss through platform mismanagement or negligence.
b. The UKCFA has adopted a code of conduct, which sets out the minimum operational standards for all crowdfunding platforms. Adhering to this Code of Conduct is a condition of being a Member or Supporter (in so far as a Supporter operates within the crowdfunding market) of the UKCFA, regardless of regulatory status.
6. Appropriateness and investor screening
a. The UKCFA recognises that some investments present greater risks to consumers than others and that it is the responsibility of the platform to ensure those risks are communicated appropriately.
b. The UKCFA believes that it is the responsibility of each platform to consider and comply with any appropriateness testing and investor screening processes which are required under regulation.