Online marketplaces for loans and equity funding in the UK face greater scrutiny over the safeguards provided and transparency of their service under rules outlined by the Financial Conduct Authority.

An “appropriateness test” will be applied requiring crowdfunding platforms to check prospective clients are either advised or else are only investing a maximum of 10 per cent of investible assets. Crowdfunding sites will also be required to provide clear and fair information to their customers about their activities.

The rules will not apply to crowdfunding platforms where backers either donate their money or receive rewards rather than equity stakes, or where the organisation raising money does not provide returns based on the performance of the underlying assets.

Consumer protection is at the heart of the measures, according to the regulator. By stepping in to set rules for the market, however, the regulator has provided implicit backing for an alternative funding market eager to move beyond its image as an interesting but niche activity.

Crowdfunding is a product of the internet age, using the reach and connectivity of the web to bring together those in need of money with those with cash to invest.

More than £1bn has been raised in this way, increasing 618 per cent in the past year alone, according to research by Nesta, a think-tank. However, this is still a fraction of the total equity funding and debt market.

Loan-based crowdfunding, known more generally as peer-to-peer lending, will be regulated by the FCA from April this year. The £480m lent by consumers to individuals and businesses in 2013 through peer-to-peer lending platforms is relatively small as a share of total lending in the UK, but shows a rise of about 150 per cent on the previous 12 months.

Christopher Woolard, director of policy, risk and research at the FCA, said: “We want to ensure that consumers are appropriately protected – but not prevented from investing.”

James Meekings, co-founder of Funding Circle, whose peer-to-peer lending platform facilitates corporate debt funding, said: “The FCA has shown foresight in striking the balance between enabling the industry to continue to flourish while ensuring the protection of investors and borrowers.”

Karen Kerrigan, legal director at Seedrs, an equity crowdfunding business, applauded the use of the 10 per cent category.

“It represents the FCA’s view that the average retail investor should have the freedom to participate in equity crowdfunding, provided they are appropriately protected,” she said. “We wholeheartedly support this view.”

However, others complained that the 10 per cent rule was too restrictive. Barry James, founder of The Crowdfunding Centre, said: “It takes the crowd out of equity crowdfunding.”

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