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Crowdfunding and the FCA: The man with the red flag walks again

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Our blessed regulator, the FCA, has found an ingenious way to apply the red flag ruse to social media conversations about businesses using crowdfunding.

Back in the year 2000 a dull sounding piece of legislation, the Financial Services and Markets Act (FSMA), saw the light of day.

This gem is supposed to prevent unregulated promotion of financial products to the great unwashed. Thankfully it was realised at the time that this legal colossus could prevent media commentators from discussing IPOs, etc. in their publications.

Indeed it might even make it a criminal offence for “the man in the pub” to discuss the relative merits of companies. This was all patently absurd so, quite rightly, our media and people in pubs were excluded from the reach of FSMA.

Of course it comes as no surprise that FSMA provided a welcome kicker for the compliance industry and our financial regulator is now doing his best/worst to use it to kill off equity crowdfunding.

How so? The FCA has recently been sending out nasty letters to whoever they feel like targeting amongst crowdfunders, saying that they deem the use of social media to discuss equity offerings as being a financial promotion under Section 21 of FSMA. Therefore anyone so doing will face two years in jail unless they are regulated by the FCA. This includes mentions on the web, in facebook, tweets and retweeting etc, by anyone.

To give you an example, if you go to TheCrowdfundingCentre.com, you will find a notice attached to all the equity and loan offerings it lists saying “Due to current FCA rules we are not permitted to display this product”.

This is not a click through site that earns revenue from referrals, it is no more than a signpost in the same way a newspaper signposts an offering by a crowdfunder to educate and inform. Even so the regulator declares TheCrowdfundingCentre.com is a financial promoter. So newspaper good, online bad.

I have been a regulated authorised person for some 25 years and in that time I have seen many examples of unwarranted actions and poor performance by the financial regulator. However, I have never seen such a terrifying misuse of legislation. Truly the man with the red flag is back and is trying to strangle crowdfunding at birth.

Common sense tells us that there is no difference between a man in a pub or a newspaper discussing a financial offering and the same discussion taking place online or in social media. The indubitable fact is that the FCA is using legislation which is not fit for purpose.

Fortunately Chris Moss (of Channel 4 Bank of Dave fame) has helped create clarity with some straightforward and easily implemented amendments to FSMA, which will update legislation so that the web and social media are treated in the same way as any other media. 

Now we must get his work in front of those who have the power to remove the man with the red flag and we need your help. Please don’t delay, write to your MP enclosing this article and the link to Chris Moss’ FSMA solution. Write also to the Prime Minister and Andrea Leadsom, Economic Secretary to the Treasury. Thank you.

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