With the value of the crowdfunding industry seemingly on track to hit NESTA estimates of around ?15bn within five years I suppose it?s hardly surprising to find the City beasts eyeing up this young gazelle of an industry. It?s probably growing many times faster than just about anything they have in their portfolios.But if they try to ride it now they could damage it beyond repair. The siren call for some to get their hands on institutional money, channeling huge flows into projects and taking their cut ? rather than relying on the crowd to fund projects ? brings with it a demand for a rush-to-regulate that could kill off the entire industry. It may be hugely profitable for the one or two platforms that would benefit for this minority model – but it?s certainly not crowdfunding and it could impose such a regulatory burden on the whole industry as to ?strangle it at birth? as Jon Moulton has put it. Meanwhile the rush to regulation is stampeding right over the top of the most fundamental aspect of this burgeoning growth industry ? the crowd itself. Experts from both the Treasury and The Bank of England have voiced their opinions on the need to pause for thought, collect experience and evidence. To understand equity crowdfunding and to take time to deliver a legal framework that keeps crowdfunding open to the crowd – not just sophisticated investors ? and avoids weighing it down with huge and unnecessary costs and restrictions. Why then have regulators being stampeded with demands to roll equity crowdfunding in with regulation of peer-to-peer when even the regulator admits it?s far from ready and needs to ?take a step back and start with a clean sheet of paper?, as David Geale, the regulator responsible put it last week? A consultation paper now expected next month will, according to a recent article in The Times, likely include:
- Tests a lender or equity investor would have to pass to prove they understand the risks of investing;
- How much they should be allowed to invest;
- Whether they should have access to industry-funded compensation if they are defrauded;
- Whether the Financial Ombudsman should play a role;
- The disclosures firms must make; and
- The due diligence that crowdfunding platforms should have to perform on the firms seeking money.
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