UKBAA Equity Crowdfunding Members Respond to the FCA Crowdfunding Review 2015

Author

UK Business Angels Association

05 February 2015

You may have read the latest FCA Crowdfunding Review published this month, reviewing the impact of the introduction of a new regulatory framework for crowdfunding last year, looking at equity and lending platforms.

As the FCA points out, the market has continued to rapidly expand with over £84m expected to be raised on investment-based crowdfunding platforms in 2014 which is three times the amount raised in 2013 (£28m), according to the recent Nesta report.

However, whilst the FCA identified some issues concerning the operations of certain platforms, such as diminishing the risks associated with equity investing and cherry-picking positive information on deals – the report concludes that there is no need to change the regulatory approach, either to strengthen consumer protections or to relax the requirements that apply to firms at this stage.

The FCA plans to carry out a full post-implementation review of the crowdfunding market and regulatory framework in 2016.

Our colleagues at the UK Crowdfunding Association have welcomed this review:

Response from the UK Crowdfunding Association:
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. See full response.

The UKBAA’s Crowdfunding Members and have made their responses to the FCA’s report below:

Response from Crowdcube:
“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. As the UK’s leading platform, Crowdcube aims to be an exemplar for other platforms to aspire, particularly as the number of platforms entering the market continues to grow rapidly. We are committed to working together with the the FCA to achieve this goal and we’re pleased that Darren Westlake, CEO of Crowdcube, has been invited to speak by Martin Wheatley, the executive director of the FCA, at the forthcoming four day International Organisations of Securities Commissions conference, which is a forum for global financial services regulators.”

Luke Lang, Co-founder & CMO

Crowdcube

www.crowdcube.com

Response from CrowdBnk:
“We very much agree and are committed to ensuring that investor protection is at the forefront of crowdfunding platforms, particularly for the retail investors who are experiencing early stage investing via crowdfunding for the first time. This is an important step for our industry as we mature. However we need to be mindful of over regulation which if not checked, will stifle growth in this nascent but important sector which is critical to address the funding gap issue for small businesses as highlighted in the Breedon report. While we welcome the FCA report it is important that the whole industry is not tarnished with the same brush because of the actions of a small minority. Like any industry there will be people not abiding by the rules, the task needs to be to ensure that they comply with existing rules as opposed creating unwieldy new ones. It is important that investors – especially new investors, have access to investments that would otherwise be closed off to all but a few. This is at the crux of crowdfunding and critical to wealth creation for all.We look forward to helping build regulations that are workable and meaningful to the future success of crowdfunding.”

Ayan Mitra, Chief Executive

CrowdBnk

www.crowdbnk.com

Response from Investingzone:
“The FCA regulates the equity crowdfunding industry and of course, from time to time it has reason to set platforms straight over various things – just as it does with businesses in any other area it regulates. Investor confidence is vital to all crowdfunding platforms and we welcome guidance from the FCA to help the industry get things right. It’s win-win.

InvestingZone wants nothing more than to work with the regulator to ensure that this market grows in a sensible and sustainable way and that investors understand the risks they’re taking. We’ve liaised with them in the past over our platform and processes and I’m sure we’ll do the same in future.

We also work hard to ensure that the shares investors buy through InvestingZone.com have the appropriate rights and protections. As long standing members of the early stage venture capital community, we’re acutely aware that these rights can make the difference between making a return and losing your money.”

Richard Brockbank, Director

Investingzone

www.investingzone.com

Response from SEEDRS:
“It is too early to tell what kind of return investors can make, although initial indications are very positive. It’s well known that anywhere from 50-80% of early-stage companies fail, and we wouldn’t expect that to be any different on Seedrs. As for the experience levels of investors, our whole point is to democratise investment and open the space to people who couldn’t previously have invested in this asset class.”

Jeff Lynn, Chief Executive Officer

Seedrs

www.seedrs.com

Response from SyndicateRoom:
“SyndicateRoom welcomes this week’s action by the FCA to warn those equity crowdfunding platforms that are not being clear about risks, hiding information that enables customers to assess risk, etc to raise their standards of behaviour. SyndicateRoom is proud to be one of the leading platforms in this dynamic new sector and can confirm that it is NOT one of the offending platforms. It is crucial for investors and the reputation of the sector that those companies that have been misleading customers take immediate steps to improve their openness and honesty. Sadly these shortfalls in the behaviour and practices of just a few of the platforms can hurt the standing a reputation of the whole zone, which is both unfair and unhelpful to everyone concerned, including investors.”

Gonçalo de Vasconcelos, Chief Executive Officer

SyndicateRoom

www.syndicateroom.com

Response from AngelsDen:
“AngelsDen welcomed the Crowdfunding regulations introduced last year. It was a fantastic opportunity to create a level playing field between equity Crowdfunding and the existing Angel networks, who have been following FCA guidelines for many years.

We also welcome the report on their enforcement to ensure companies make clear financial promotions. We are pleased that Equity Crowdfunding came out as the most responsible of the type of Crowdfunding.

Investors clearly need to be properly appraised of the risks and know how to manage and support the companies they invest in, to create real and lasting growth in the economy, rather than a quick cash fix.

We agree that Education in key and this is why we have always offered free training to help our angels make wise investments at reasonable valuations and mentor their investees through to exit, whether they are investing online or using paper records.

The growth of equity Crowdfunding is fuelling the growth of the economy and Angels Den is proud to be one of the major providers.”

Lois Cook, Co Founder

AngelsDen

www.angelsden.com

Response from Funding Tree:
“We promote the highest levels of transparency across all our marketing and communication channels.

Within the subject FT article, peer-to-peer lending is stated as the lower-risk investment option. We believe, that as a debt and equity platform, this declaration supports our position as a platform which can offer truly balanced investment propositions and that our transparency techniques are beyond adequate; we inform our investors at every opportunity of the need to create diverse portfolios comprising both transaction types to spread any risk. This puts us on somewhat surer footing than if we were instead offering a single investment method. For those investors who opt to take the equity investment option, meanwhile, they are made expressly aware of the risks involved.

The point about deletion of negative comments is an interesting one. Of course, our platform doesn’t permit us to intervene between investor/business engagements so this observation isn’t as relevant to our platform. Nevertheless, on Funding Tree, investors pose questions directly to the businesses which are then published for all to see. A lot of our businesses routinely undergo heavy cross-examination by our investor base and some of their questions would lead us to believe that our core investors are actually highly knowledgeable in the investment arena.

All our due diligence process are uniform and are handled by experts in forensic accounting and are overseen by experienced entrepreneurs to minimise risk as much as possible before the business enters the live investments page.”

James McGrath

Funding Tree

www.fundingtree.co.uk

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