Crowdfunding is a relatively new way for firms to raise finance by asking large numbers of people to act like Dragons' Den-style investors. Sometimes people will get back money with interest or shares, or they will donate if they believe in a cause.
The Financial Conduct Authority (FCA) estimates the UK crowdfunding market is worth about £360 million. Around 90% of crowdfunding is carried out by peer-to-peer lending sites such as RateSetter, Funding Circle as well as Zopa, which announced this week it has lent more than £400m since it launched in 2005.
Peer-to-peer lenders match firms seeking investment with people who have money to lend.
The new regulations proposed by the FCA apply to peer-to-peer lenders, which it will start overseeing when it takes control of the consumer credit market next April, and equity investment-based crowdfunding, which it already regulates.
Its plans, which will be set out firmly next spring after a consultation, aim to spur competition and help the industry grow while making sure consumers fully understand the potential risks.