‘Democratic’ crowdfunding under threat

Regulation could stifle the online money-raising phenomenon that is filling the gap left by banks

Leading MPs and senior figures in the UK's crowdfunding industry are calling on the Financial Conduct Authority to halt the current consultation over regulation, because they claim the process is deeply flawed and may strangle the industry at birth.

They are particularly concerned about the propsed rules relating to equity crowdfunding. Top investor, Jon Moulton, Karen Darby, founder of CrowdMission and Barry James of the Crowdfunding Centre, are among industry players who want the FCA to stop the present consultation period that is due to close this Thursday and to start afresh in the new year.

Mr Moulton said: "The FCA rules propose stopping those that are not classed as sophisticated or high net worth investing more than 10 per cent of their net investible portfolio in unlisted shares, unless advised. This is wrong."  Ms Darby, who runs the first equity-based platform for social impact businesses added:  'It is ironic that equity means fairness. It is about sharing and being inclusive. However,  there is nothing fair or inclusive about the FCA's stance on equity crowdfunding.'

Reaching the “crowd” via the internet was first used by music bands in the US more than a decade ago as a way of raising finance in return for rewards such as albums. More recently, Sir David Attenborough backed a new fundraising campaign to protect gorillas.

But over the past few years, the industry has soared. It now includes crowdfunding platforms allowing entrepreneurs to raise money in return for equity – or shares – on platforms such as Crowdcube, and raise loans with peer-to-peer lenders such as Funding Circle and the latest new entrant, Archover.

Mr James said: “Many in the industry believe the regulator has failed to make the process open to, and inclusive of, all the stakeholders in the UK. For example, it has not consulted entrepreneurs and other businessmen and women who might use these crowd equity platforms or investors who might be interested in investing in them. There is a danger that the FCA will make crowdfunding regulation so onerous for potential investors that it will close down this new means of raising finance which has huge potential to create new jobs and help economic growth. We want regulation but not bad regulation. That kills jobs.”

One of the industry’s leading advocates, Barry Sheerman, the Labour MP who is co-chair of the Crowdfunding and Non-Banking Finance All-Party Group with Julian Huppert MP, backs the industry’s decision for a fresh start. On Wednesday, Mr Sheerman is heading a parliamentary debate at Westminster Hall at which he will explain how crowdfunding is an essential new tool for helping start-ups and companies to raise new finance at a time when bank lending to small and medium enterprises (SMEs) is declining.

Mr Sheerman has been highly critical of the FCA’s hard approach to crowdfunding, urging the Chancellor and the Bank of England Governor to ensure that the FCA takes a more open view. He is concerned by the FCA’s proposals on equity crowdfunding that allow only people who are considered to be “high net worth individuals” or sophisticated investors to invest in companies raising money in return for shares through internet-based platforms. So long as equity crowdfunding sites carry heavy-weight risk warnings, he and industry supporters believe the public should be allowed to invest as little or as much as it wishes.

Another high-profile supporter of crowdfunding is Andy Haldane, one of the Bank of England’s top directors, who has also predicted that the use of technology will bring about a revolution in finance.

A new report by UCL Berkeley, Cambridge University and Nesta predicts the finance raised next year from crowdfunding will be £1.6bn, almost as much as the total raised from 2011 to 2013. About £840m of this will be business finance for startups and SMEs. Equity crowdfunding, the type of finance which would be most hit by the FCA’s proposals if they go through as they stand, grew by more than 600 per cent from last year.

Mr James said: “Crowdfunding is the beginning of the post-digital economy bringing new freedoms. It’s also democratic, allowing citizens to invest in the businesses of their friends and families in a new way. We must not allow the FCA to kill this off this industry before it’s even started.”

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Maths Teacher

£110 - £200 per day: Randstad Education Leeds: Secondary Maths Teacher for spe...

Business Analyst - Surrey - Permanent - Up to £50k DOE

£40000 - £50000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***ASP.NET Developer - Cheshire - £35k - Permanent***

£30000 - £35000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***Solutions Architect*** - Brighton - £40k - Permanent

£35000 - £40000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker