Speaking at a Westminster Hall debate, Sheerman said that there was evidence that a rush to regulate the sector in the US had “strangled the baby at birth,” and made it almost impossible for equity-based crowdfunding to carry on. 

“If we go down the United States route we will lose this opportunity to have one of the biggest growth sectors and most interesting phenomenoms of our modern economy,” he said.

A recent study by Nesta found that the UK crowdfunding market has grown in value by 618 per cent this year.

There have been suggestions that FCA regulation plans will restrict crowdfunding investments to “sophisticated investors” and force people to only use ten per cent of their portfolio for equity crowdfunding.

Sheerman said: “It’s demeaning to say you can only do this if you have a certain net worth or are a ‘sophisticated’ investor.”

“My constituents can go to a bookies and lose thousands in a day. They can go next door and borrow money at ruinous rates of interest from a payday lender. They can go online and gamble or spend a lot of money they haven’t really got.

“Why can’t ordinary people be able to put a fiver or £10, or even £50, small amounts in something they think will grow?”

Sheerman said he wasn’t against regulation and had a good relationship with the FCA, but that he wanted to ensure regulation was appropriate.

“There is a sensible and commonsensical way of having regulation that doesn’t do damage,” he said.

Treasury Minister Sajid Javid said he recognised Sheerman’s concerns and that the government was working with equity crowdfunding platforms and the FCA to ensure regulation was proportionate.

Related: Barry James, director of the crowdfunding centre, says that regulation plans threaten to kill one of the great innovations of our time.

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