If you’re thinking about making your first crowdfunding investment, you may be wondering what sort of risks are involved and what safeguards might be in place to protect your invested capital. Perhaps you’re aware that the Financial Services Compensation Scheme (FSCS) – whose remit is to provide protection for customers of failed financial services firms – can offer protection for things like bank deposits and insurance. But do they cover crowdfunding investments?

The short answer to this question is no: if the investment fails, resulting in either a lower return than expected or no return at all, then the losses of investors will not be covered by the FSCS. Any investment opportunity which is being promoted by a firm regulated by the Financial Conduct Authority (FCA) or such a firm’s Appointed Representative, has a regulatory obligation to make it sufficiently clear in their risk warnings and disclosures that investments are not covered by the FSCS.

There is, however, one situation in which investors may be able to make a claim to the FSCS in relation to a failed crowdfunding investment: if the firm promoting the investment is found to have misrepresented the investment, then investors may be able to claim up to a certain amount of compensation from the FSCS.

You can find out more about the FSCS and read more about which products are eligible for coverage on their website.

 

Photo by Tim Evans on Unsplash

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