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How the FCA’s new rules “will decimate crowdfunding”

France has long been known as one of the most difficult places to start a business, with more red tape than you can shake a French-stick at. This time our own regulator the FCA has them beat.

In place of ‘La Libert ‘ we are now to make legal undertakings, become ‘restricted investors’, and kowtow to North Colonnade before we’re permitted to commit 10 of our own cash.

Until now we have been world leaders in equity Crowdfunding. Last week, after a vigourous consultation process, the French government decided to put no limit on ordinary people making their own decisions about how much or little they might put into an equity Crowdfund.

In the same week our FCA decided, after a perfunctory consultation process about which there’ve been numerous complaints, that from April if you want to put a tenner in to support a company or project then you have to give them a scary legal undertaking (as far as I know it does not need to be signed in blood – but watch this space) that you have not, and never will, overdo it!

In fact it’s rather more complicated than that. What they insist you must sign up to involves something most people would probably need:

a) Legal advice


b) A long session with a calculator or a spreadsheet

…to understand and make sense of and ensure you didn’t put in more of your own money than they say you should. For the first and every 10. 

Now this really is Olympic standard bureaucracy! Industrial scale red tape. Have a look at the stuff below from their policy document and see for yourself.

It raises all sorts of questions – not least to whom am I making this legal undertaking – the FCA” What are the consequences if I misunderstand or deliberately mis-declare – and on whom do they fall Come to that why do I have to make an undertaking to a government agency before committing my own money. This sets a terrible precedent.

Do the FCA now think that they’re there to ‘restrict’ us all (you will be termed – and must agree to being termed – a ‘restricted investor’)” Do they now want to regulate the crowd rather than ‘protect consumers’ as they claim  

Is it acceptable – not to mention necessary – for them to do the one in order to achieve the other All the evidence says an unequivocal NO on both counts. So to do France, New Zealand and increasingly other countries – including the USA.

Come to that when will these restriction be imposed on fixed odds gaming machines and other forms of betting

As Liat Clark noted in Wired this week “the harder it is to do, the less amount of people are likely to follow through” and it takes much less than this in additional hoops and red-tape to put most people off – Liat herself included, as she reports.

Given the civil liberties implications alone it’s astonishing that the UKCFA and some platforms have yet to twig that this is a poison chalice – although to be fair they will only now be looking at the detail, in which this devil lies. 

Among those who have are Derek Bond, MD of Scottish platform Squarknot, who is concerned about the friction this will create, detering people. He points out that a sensible limit, such as agreed in New Zealand, would enable everyone to participate in crowdfunding without having to complete a self-certification process.

As things stand we’ll be lucky to have 10% of Crowd left standing. Last year regulator David Geale said that their intention was ‘to deter the mass-market’. Well this will do just that, needlessly – while setting a chilling new president.

In December Treasury Minister Sajid Javid told Parliament that the government would not allow such unnecessary obstacles to be placed in the way of this important industry. Fine words. Now it’s time for action.

Barry Sheerman MP who chairs both the Westminster Crowdfunding Forum and the APG on Crowdfunding and Non-Banking Finance has called for a Parliamentary debate to address this next week. 

So now is the moment when we will find out both whether those fine words will be honoured and whether Parliament and the government will support the crowd, who elect them, or the bureaucrats who want us to give them our solemn undertakings.

Barry James is director of the Social Foundation

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