Regulation of crowdfunding in the European Union and the United Kingdom : a comparative analysis

Abstract

Crowdfunding has become increasingly important as a source of financing for small and medium-sized enterprises and start-ups. While crowdfunding offers benefits for investors, there are also risks involved. Thus, investor protection should be a top priority in crowdfunding regulation, particularly when it involves retail investors who are typically less experienced and knowledgeable than professional investors. Investment terms and risks may be difficult to understand, and it's important to note that funding SMEs and start-ups carries a high probability of resulting in losses due to their nature. The Financial Conduct Authority has been regulating crowdfunding services in the United Kingdom for some time and has implemented strict regulations to protect investors' interests. In contrast, the European Union recently harmonised crowdfunding regulations across its Member States. Upon comparison of the two regulatory frameworks, this study concluded that although there are some differences, both the EU and the UK have implemented similar investor protection measures for crowdfunding platforms to adhere to. These measures include strict disclosure requirements, appropriateness assessments for retail clients, and prudential requirements.