The crowdfunding sector of the UK will be placed under stricter regulations by the Financial Conduct Authority or FCA to give protection to investors and make the sector more transparent, the Yorkshire Post reported.

In particular, the FCA said the rules would ensure more transparency in loan-based crowdfunding. As such, firms that look to raise capital through crowdfunding are required to give "fair, clear information" so that the investors have a clear idea of the risks involved. In addition, the companies behind loan-based crowdfunding platforms would need to specify how loan are going to be repaid in the future even if the crowdfunding site experiences problems, the report said.

For example, the watchdog's regulations bars investors from putting over 10% of their portfolio to securities crowdfunding if they don't have a financial background or don't get financial advice. However, private equity funds and private investors who are experienced in the world of investing can put in much more, the report said.

There are FCA guidelines already in place for securities crowdfunding as of this time but none for loan-based crowdfunding. A consultation was begun by the regulator last year and the new rules will become effective starting April this year, the report said.

In the UK, the crowdfunding sector is rapidly growing, with investors in Britain giving £480 million in loans and purchasing unlisted securities worth £28m last year. This represented a 150% increase from that of the year before.

The FCA has also required crowdfunding platforms to have minimum capital requirement of £20,000, with the watchdog looking to increase these later on since the Financial Services Compensation Scheme does not safeguard these investments, the report said.

FCA Director of Policy, Risk and Research Christopher Woolard told the Yorkshire Post, "We want to ensure that consumers are appropriately protected but not prevented from investing."