UK Crowdfunding Association response to the FCA review on the regulatory regime for crowdfunding
We welcome the FCA’s review of the crowdfunding and their conclusion that they see no need to change their regulatory approach to crowdfunding, either to strengthen consumer protections or to relax the requirements that apply to firms.
Investment based crowdfunders have been working under FCA regulations, some for more than three years now, and are very familiar with the need to provide a balanced view of returns, and make clear the fact that an investor’s money is at risk. There is no such thing as investment without risk – crowdfunding can offer a wide variety of risks and returns to suit an investor’s risk appetite.
The review highlighted the fact that the industry was engaging new investors, and our experience is that there is strong interest from friends and family, people wanting to back local businesses, and that social as well as financial returns were a key driver for a significant number of investors, most notably 86% of those investing in debt based securities.
We continue to campaign for improvements to the authorization process, as we feel expectations on readiness are unrealistic and represent a real barrier to innovation and competition. For example: new crowdfunding platforms can get stuck in a vicious circle of needing a bank account before they can be regulated, but not being able to open a bank account until they are regulated.
We also hope that with more experience across our 45 member platforms we can make a case to remove the appropriateness tests and investor categorization for lower risk debt securities which are effectively loans to established/asset backed businesses, and for smaller one-off friends and families investors to whom these tests represent a real barrier to backing the businesses and projects that are close to their heart or home.