The Financial Conduct Authority (FCA) are starting to make their mark on the UK financial industry.
In the last few years the UK has seen an unprecedented level of financial innovation. The market is seeing more new entrants, privately funded lenders, peer to peer and crowdfunding platforms.
Crowdfunding has seen fantastic growth. With savers getting low interest returns and businesses finding banks unaccommodating, these platforms have experienced an almost perfect storm.
The Benefit Problems With Crowdfunding
The problem with standard business bank finance is that it takes time. That mean time to get an answer and time to get your money. Crowdfunding is quick. With an answer normally received within 48 hours and funds in your account inside 10 days, crowdfunding is providing service standards that the customer actually wants.
The issue the FCA has is that there is no cooling off period. This means no period in which to change your mind.
Bearing in mind that crowdfunding platforms raise their capital direct from savers, the FCA’s concern is two fold, from both the lending saver and the borrower.
In this way the benefit of crowdfunding is also the very thing that the FCA have an issue with, being how quickly it all happens.
With crowdfunding sites that help businesses raise funding through equity, the FCA wants inexperienced investors to limit their exposure to a maximum of 10% of investable funds. Which could kill off this form of business funding.
FCA Proposals For Crowdfunding
The FCA have published their proposals for regulating the crowdfunding industry today, if you want to download a copy because you really cannot sleep then you can do so here – FCA Proposals, if not then these are the salient points;
- The regulations apply to all forms of crowdfunding, whether that be investment, loan, or reward based. This means it will apply to Kickstarter, Funding Circle, Crowdcube, Seedrs and all the other crowdfunding sites
- For people wanting to invest, they will need to certify that they have only invested a maximum of 10% of their available funds
- For loans a 14 days cooling off period comes into force
Could This Kill Crowdfunding?
The issue is whether the investors, normal people who are not super wealthy, will be able to meet the 10% rule. The danger is that regulation could take the crowd out of crowdfunding.
What the real impact will be will show in time. The hope is that financial innovation will not be stifled at a time when it is needed most.
If you have any questions then contact Lime Consultancy on 01293 541333, or add your comments below and we will always respond.
By Dave Farmer