The UK government pledges to ensure regulation won’t stifle crowdfunding growth

The UK Government yesterday promised it would not allow FCA regulations to stifle growth of the burgeoning crowdfunding industry.

Speaking at a Westminster Hall Debate, Treasury Finance Secretary Sajid Javid MP also said the government was keen to ensure the UK maintains its strong global position as leaders in crowdfunding investment.

“Whilst we recognise the importance of regulation,” he said, “We also know it’s essential that regulation is proportionate to ensure it does not stifle growth of the market. The government will be continuing to work with the platforms and the FCA to ensure we have the optimal framework and ensure the crowdfunding industry can continue on its upwards trajectory.

He highlighted the UK’s world leading status on investment crowdfunding and assured attendees that despite the fact that some platforms have lobbied the FCA for regulation the government will not allow regulation to create barriers to entry or stifle growth of the market. Mr Javid added that he had in fact already relayed his own concerns about this to the FCA.

“The platforms view is that regulation provides credibility and helps attract investors. Having proportionate regulation is key to making sure there are no additional barriers to entry of the industry. One of the successes has been light barriers to entry and we are very keen as a government to make sure a proportionate response protects consumers, borrowers and lenders but doesn’t create barriers to entry.

“Crowdfunding has huge potential to expand much further and the UK has a strong global position in crowdfunding investment, we are very keen to make sure we maintain and grow this position.

“SMEs are a vital part of the UK economy and access to finance is important to make sure businesses reach their full business potential. Crowdfunding may be relatively new but it is growing at a fast pace.”

The historic debate was called by Labour MP Barry Sheerman, who warned that the UK risks losing its global leadership position if FCA regulation stifles the growth of crowdfunding and held up the US as an example of what happens when governments over-regulate. Mr Sheerman said over-regulating of equity crowdfunding in the US had “strangled the baby at birth” and insisted that UK regulation “must be quite soft” if we are not to lose the opportunities brought by one of the most exciting growth sectors.

“Crowdfunding is one of the most vibrant, important and exciting industries to appear in decades, the possibilities are endless,” said Mr Sheerman. “This is not small beer, it’s big and it’s going to grow. The fact of the matter is we in the UK are likely to be, if we get it right, the centre of crowdfunding in the world. Partly because the US in their haste to regulate it, many people would argue, have strangled the baby at birth. The US has over regulated and made it almost impossible, certainly in equity crowdfunding, to carry on.

“I really want to make this appeal that whatever the FCA does in regulation, they do it with care. I’m not against regulation, but it must be appropriate and it must be quite soft – if we go down the US route we lose the opportunity to have one of the most effective growth sectors.”

He said the FCA shouldn’t present obstacles to growth of the sector.

“There is criticism that they will take the crowd out of crowdfunding if they are not careful. I’m not against the FCA, we just want to make sure we get this right.

The cross party support to protect the future of crowdfunding was welcomed by the crowdfunding sector. Barry James, founder of The Social Foundation and The Crowdfunding Centre, was also at today’s debate. He is delighted to hear the crowdfunding industry has such strong support for growth.

“Hearing there are to be no unnecessary barriers to entry and that regulation will not be allowed to stifle crowdfunding’s upwards trajectory is great news. It’s gratifying that the achievements and potential of crowdfunding have been recognised across all parties. We look forward to working with the government and all parties to ensure that we continue as world leaders and that crowdfunding can reach its full potential to alleviate the suffering brought about by the financial crash and help to transform the economy.”

Karen Darby, founder of CrowdMission.com, the equity crowdfunding platform for social businesses, said: “This fledgling industry needs to stand firm and not accept every rule proposed by the regulator. While crowdfunding is truly being embraced by both businesses and investors, the FCA, with its ‘nanny state’ stance, can’t be allowed to smother equity crowdfunding in its infancy.

“We believe there’s not only a new breed of social entrepreneur emerging, but there’s a new breed of investor; ordinary people who want to back good businesses.”