The Financial Conduct Authority expressed its growing concern over crowdfunding scandals involving hundreds of thousands of pounds in money stolen from investors.
They claim it may reach heights similar to today’s payment protection insurance scandal. Except with crowdfunding, the chances of locating and refunding one’s investment is non-existent.
PPI was mis-sold by bank employees. Through aggressive sales tactics involving “rushing” consumers to sign a form that permits the sale of PPI, many UK consumers had to make a claim to refund as much as £3500-5000.
But for crowdfunding, the 100 platforms available in the United Kingdom does not have any form of insurance that would protect investors from losses.
The UK City watchdog also regulates crowdfunding in the country. It currently has a set of rules for loan-based crowdfuning and specific rules for equity=based crowdfunding.
Equity-based crowdfunding is when businesses raise money without guarantees they would return profit to crowdfunding investors.
Irregularities in system management including logistics, erroneous or fraudulent figures for profit and other criminal methods allow the liquidation of said entities and companies, leading to a loss of profit for crowdfunding investors with the business taking much for itself in losses.