1.2 Regulated Retail Investment Crowdfunding
Welcome to Lesson 1.2 Regulated Retail Investment Crowdfunding
This lesson covers the two main types of FCA-regulated investment crowdfunding: securities-based crowdfunding and loan-based (peer-to-peer) crowdfunding. Both models connect investors directly with fundraisers via an online platform, but they differ materially in product, mechanics, and regulatory obligation.
By the end of this lesson you will be familiar with how each model works, how they compare operationally and regulatory, the benefits and risks they present, and the tax wrapper options available to investors.
Learning Objectives
• Define securities-based crowdfunding and understand its key concepts and mechanics
• Define loan-based (P2P) crowdfunding and understand its key concepts and mechanics
• Compare how the two models operate, including their key regulatory differences
• Recognise the investor protection frictions that apply to both models
• Identify the benefits and risks for both fundraisers and investors
• Understand the tax wrapper options available for each model, including IFISA eligibility
1. What is Securities-Based Crowdfunding?
What It Is
A securities crowdfunding platform brings together businesses looking to raise capital and investors looking to put their money to work. Businesses do this by offering securities — either:
• Equity (shares) — giving investors an ownership stake in the business, with returns dependent on growth and exit events
• Debt instruments (bonds and debentures) — giving a contractual right to repayment of capital with interest over a fixed term
The platform’s role is to facilitate that connection, with regulatory obligations running to both groups.
How the Platform Works
For fundraisers
• The issuer submits an offer; the platform conducts due diligence on the fundraiser and the offer
• The platform designs and approves its own financial promotion for the investment before publication
• The offer is listed for a defined fundraising window; funds transfer if the target is met
• The platform facilitates but does not underwrite — it arranges the transaction
For investors
• Before participating, investors must be onboarded and vetted — this includes identity and AML checks, investor categorisation, and an appropriateness assessment to confirm they understand the product and its risks
• Platforms also carry ongoing obligations under the FCA’s Consumer Duty to ensure products and pricing deliver fair value and that investor outcomes are actively monitored
• These requirements are covered in more detail in Section 3
Who It Serves
Primarily early-stage and growth-stage SMEs seeking alternatives to bank finance or venture capital. For investors, it provides access to asset classes that were previously available only to angels and institutions. It is also used for limited term property projects where loan financing is not a practical option, either to to loan to value ratios or this level of risk in the project.
Tax Wrappers
• Equity (shares): Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief may be available where the issuing company qualifies, offering income tax relief and CGT benefits to eligible investors. Platforms will typically flag eligibility at the offer stage.
• Debt instruments: Eligible debt securities can be held within an Innovative Finance ISA (IFISA), sheltering interest returns from income tax within the annual ISA allowance.
• Important: Equity shares are not eligible for the IFISA.
Note — Speculative Illiquid Securities (SIS) and Why They Matter
Certain debt securities — particularly those used in property fundraising — may be classified by the FCA as Speculative Illiquid Securities (SIS). Under PS20/15, SIS are classified as Non-Mass Market Investments (NMMI) — the FCA's highest restriction category — which bans mass marketing to retail investors entirely and imposes a suitability assessment obligation on any regulated platform offering them.
In practice, we are unaware of any regulated retail crowdfunding platform offering SIS products. The combination of a severely restricted investor pool and a suitability obligation makes it operationally and commercially unworkable for platforms built around broad retail access.
The regulatory effect is therefore structural rather than operational — SIS classification closes the regulated securities crowdfunding route for affected fundraisers and pushes them toward one of two alternatives:
1. Regulated P2P lending — loan agreements fall outside the securities classification entirely, sidestepping SIS and returning to the standard RMMI framework with its broader investor base
2. Unregulated raise via FPO exemptions — raising directly from investors who qualify under Financial Promotions Order exemptions (e.g. HNW individuals, sophisticated investors), without using a regulated platform at all
What the SIS rules definitively achieved was shutting down the mass retail mini-bond market — the specific harm the FCA had identified, most visibly in the London Capital & Finance collapse. What they did not do is stop the underlying fundraising activity. That activity has shifted toward P2P structures or FPO-exemption routes, which may be less efficient for fundraisers and, in the case of unregulated raises, subject to less oversight than a regulated retail platform would provide. Whether that outcome better serves investors is a more open question.