The Financial Conduct Authority (FCA) is to consult on additional rules for crowdfunders after its call for input raised "a number of issues for discussion", it has said in an interim statement.
In particular, the regulator wants to introduce more prescriptive requirements on disclosure by both loan-based and investment-based crowdfunding platforms.
It is also looking to add requirements and restrictions on cross-platform investment and extend mortgage-lending standards to loan-based platforms.
The FCA found in its call for input that it was difficult for investors to compare platforms with each other or to compare crowdfunding with other asset classes due to "complex and often unclear" product offerings.
It said it was difficult for investors to assess the risks and returns of investing on a platform and that financial promotions did not always meet its requirement to be 'clear, fair and not misleading'.
The complex structures of some firms also introduced operational risks and conflicts of interest that were not being managed sufficiently, it added.
In the loan-based market if found certain features were introducing risks to investors that were "not adequately disclosed and may not be sufficiently understood by investors".
It also found wind-down plans at some firms in the event of a failure were inadequate. It said it had already challenged firms to improve their client money handling standards.
Chief executive Andrew Bailey said: "Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers.
"Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified."
Crowdfunding is a booming market. It is estimated more than one million people in the UK invested, donated or lent using peer-to-peer lending or crowdfunding platforms last year.
Equity- and loan based crowdfunding operates in slightly different ways. The investment-based version works more like a conventional investment in shares, where shares in unsuccessful companies are worth nothing.
With the loan-based product the investments are in loans - the investors don't own shares; the reward is the interest that is paid on the loan, and the risk is the borrower defaults on that loan, as a company defaults on its obligations when it goes bankrupt.
From April 2016 giving advice on investing in crowdfunding agreements has been a regulated activity. Firms providing the service need FCA authorisation and to abide by FCA rules.
The FCA's current rules on loan-based and investment-based crowdfunding platforms came into force in April 2014. Due to the rapid expansion of the market the regulator launched a post-implementation review of these rules in the form of a call for input in July 2016.
Its ongoing research and investigatory work into the sector is due to be completed early in 2017. At that stage, the FCA will complete the post-implementation review and plans to launch a further consultation on rule changes if needed, it said.
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