By Julia Groves, chair of the UK Crowdfunding Association
Last week, crowdfunders sat side by side with members of the Financial Conduct Authority and the Treasury at the UK Crowdfunding Association to discuss the future of crowdfunding as a regulated investment.
The FCA’s presence at the event was itself an encouraging sign. “It is not our intention to kill crowdfunding” said David Geale, head of saving, investment and distribution policy at the FCA. “Let’s draw a line under that.”
This comment was designed to reassure the industry that regulation does not have to stifle the growing industry. In fact, it is our belief that proper regulation can help it to grow, and in such a way that protects investors and gives them faith that their money is as well looked after as it can be.
Without trust from investors, the crowdfunding industry is unlikely to reach the critical mass it needs to truly democratise finance. But such regulation will have to consider the unique nature of crowdfunding. Unlike other traditional investment vehicles, it prioritises accessibility and transparency.
For these principles to be preserved, regulators need to be mindful of one thing in particular: that potential investors in crowdfunds do not need to have a lot of money to be able to understand risk. As things stand, the FCA guidance states that investors should be able to put in a minimum of £1,000 and be “sophisticated” – automatically excluding anyone who wants to invest less, for whatever reason, and who does not already have an established portfolio. This means that millions of people who might be very able to afford a £100 investment, and are perfectly able to understand risk, do not have the chance to get involved – leaving them languishing in the land of poorly-paying high street savings accounts.
Indeed, the experience of the P2P industry shows us that being able to invest small amounts at first is vital as investors try out something new. Then, as they gain confidence, some might be prepared to put in more. But there is nothing wrong with wanting to invest just £100 and the amount is not a sign of an inability to assess risk.
The crowdfunders that want to be regulated (our members) want to help investors understand the risks involved and to enable investors to assess whether crowdfunding is suitable for them. They follow the FCA’s guidance of clear, fair and not misleading communications. With these principles in place, anything rules-based would be draconian.
The clue is in the name. Crowdfunding is a solution for the 95 per cent that don’t have access to finance and investment opportunities, and not the 5 per cent who have. Where people understand the risks they are taking, they should not be prevented from doing so, and certainly not on the basis of how much money they own or earn. Wealth is not a skill set. We look forward with interest to the FCA’s proposals, to be published in mid-October.