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Jersey Discusses Crowdfunding Regulation, Risks

by Jason Gorringe, Lowtax.net, London
24 May, 2016

The Jersey Financial Services Commission has issued a list of "frequently asked questions" on crowdfunding to help businesses and individuals understand the risks and obligations relating to raising or lending money through crowdfunding platforms.

The guidance says that, in most cases, crowdfunding activity is not regulated by the Commission.

The Commission warns that lending money to a person or business through a crowdfunding platform does not benefit from the same safeguards and prudential regulation that applies to money deposited with a bank. For example, the Depositors Compensation Scheme that provides some protection for money deposited in Jersey banks would not apply to crowdfunding.

While a Jersey company can seek to raise money from the public in Jersey or elsewhere on a crowdfunding platform, doing so would generally represent an invitation to the public to apply for securities. This would require a company to issue a prospectus and mean the company would be treated as a public company. A public company is subject to more stringent requirements under Jersey's company law, particularly in terms of reporting, accounting, and governance.

Individuals using crowdfunding as an alternative to borrowing from traditional sources such as banks are advised to carefully read and fully understand any loan agreement they enter into. Lending activity is not regulated by the Commission, although some institutions voluntarily subscribe to a Code of Practice for Consumer Lending.

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