Financial return crowdfunding does not pose systemic risks to the world economy yet, according to a report issued by staff researchers working for IOSCO. But in the marketplace, crowdfunding—which is growing in popularity—poses both benefits and risks, according to the report.
Crowdfunding involves the use of small amounts of money from large numbers of individuals or organizations to fund projects or businesses through an online platform.
Researchers focused on what’s known as “financial return crowdfunding,” which consists of peer-to-peer lending and equity crowdfunding. Despite the lack of a systemic risk, these markets pose problems for investor protection that need to be addressed, and regulators worldwide are working to provide oversight for financial return crowdfunding, according to the report.
Benefits of financial return crowdfunding include spreading risk and
providing entrepreneurs with a way to raise capital without giving up
large parcels of equity interest, the report says. But financial
return crowdfunding also poses a high risk of default and investment
failure, as well as risks of fraud, cyberattack, and lack of
transparency or disclosure. The full report is available at tinyurl.com/mvq8hs8.