As crowdfunding emerges as a serious alternative financing tool, a new Iosco report warns that regulatory regimes around the world will have to harmonise their approaches to an increasingly global industry.
The report lumps together two practices under the 'financial return crowdfunding' umbrella: peer-to-peer lending and equity crowdfunding. Driven by P2P lending, the market has doubled year-on-year for the last five years to an estimated $6.4 billion in 2013, says Iosco.
This new source of funding has provided a boost to economic growth by directing credit to the real economy, filling a gap left by banks in the wake of the financial crisis, says Iosco, as well as offering a chance for portfolio diversification.
Although the nascent industry does come with risks - notably of defaults, fraud, and illiquidity - Iosco concludes that it does not yet pose any systemic risk to the global financial sector.
This could change though if it is allowed to grow without proper management, and if its interconnectedness with other industries continues, particularly as funding sources become more global, raising cross-jurisdictional contractual and legal harmonisation, dispute settlement and resolution issues.
The EU has already recognised this problem, launching a consultation late last year into the prospect of a continent-wide framework for the crowdfunding market.
Iosco is now also offering up itself as a global body "well positioned to examine the need for global principles or standards in this area".
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