October is 'crowdfunding month' out there in the regulatory world. The European Commission is consulting. The SEC is consulting. Some US states are consulting. The French are consulting. And today, the FCA is consulting.
The European Commission is still in fact-finding mode, so should have the luxury of plucking all the good bits out of the US and UK approaches.
Ironically, the SEC's approach looks too much like small beer to enable fund-raisers to take on the entire US market, but enabling them to raise $1m every 12 months could be really helpful on an intra-state basis (and, indeed, possibly for many EU-based start-ups). On the other hand, it would probably be tough to market anywhere the investor limit of $2,000 or 5 percent of annual income or net worth, for those with annual income/net worth of less than $100,000.
On some ground the FCA's approach might look somewhat better, but in my view, the FCA has not struck the right balance in its proposals to regulated peer-to-peer lending and crowd-investment.
Loan-based crowdfunding platforms should be regulated more like payment platforms rather than like investment firms, as the FCA proposes. As a result, it will be substantially more expensive to establish and operate a platform with no real change in how operational risks are managed. Businesses and institutions may also be put off, both by the need to be authorised just to invest in the loans, as well as uncertainty as to their compliance obligations given that their own systems aren't even involved. The good news here is that the FCA advocates 'secondary market' for loans.
The good news for investment-based crowdfunding is that the FCA supports wider 'retail' participation than it has to date. But people will still be asked to certify that they will not invest more than 10% of their 'net investible portfolio' and face an 'appropriateness test' if they do not get advice. In other words, it will still be much easier to stick a tenner on a pony, where the bookmaker wins, rather than to back a local business in support of the economy. No one seems to take responsibility for these strange inconsistencies in the way we are allowed to use our money...
The French proposals have the benefit of adopting the approach, called for by the industry last December, of effectively regulating loan-based platforms as payment service providers. However, as Aurélie Daniel has pointed out the proposals also contain controversial "upper limits for loan-based
crowdfunding... a maximum loan amount around
€250 per individual per project and a global maximum loan amount around
€300,000 per project." While this might not trouble consumer loan-based
platforms, it would negatively impact platforms that facilitate loans
to businesses and for the purchase or development of larger assets such
as commercial property. Ironically, the French appear to have reserved
such loans for banks, and in this respect the FCA's proposals are of
course more helpful. The limits apparently do not apply in relation to investment-based crowdfunding.
At any rate, I guess entrepreneurs may be able to take their pick as to the most suitable fundraising regime.
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