The idea of a man having to walk in front of each car on the road waving a red flag to ensure that they didn’t scare the horses has often been the object of a mixture of amusement and incredulity. Yet it actually happened and was UK law up to 1896.
Now we know what the equivalent is for the digital age. The FCA want an ‘authorised person’ with a red flag to precede every crowdfund. They demand that there must be a compliance officer on board every vehicle. Just in case.
The reason crowdfunding works at all is because it relies on many people, starting with the people who know the entrepreneur, and with their participation giving confidence to others, choosing to support a business or cause via an online platform with the minimum of fuss or ‘friction’. This is no less true for Equity Crowdfunding – which has massive potential. Each taking only a small risk that they’re happy to take.
According to the recent World Bank Report Crowdfunding is now fully established as a global multi-billion dollar industry that’s here to stay. It is growing at a hugely impressive and equally consistent 63% per annum. – and has been since 2009. More than that they find that it could almost treble – yes add 180% more – to the total available venture capital in the world in the coming years. Speeding up the economy, starting now when this is so badly needed. Enabling the creation of many many more ventures and jobs.
But – even when our economy and the world’s is still in need of rescue (only this week it was found that in some of our major cities poverty and crushing debt is rife at over 40%) – this is all a bit too racy for the FCA. Their current ‘consultation’ which closes 19th December simply misses the point. It’s written around 20th century technology and pre-internet psychology and culture – to regulate a 21st century industry when the culture has moved on a million miles. They assume only those with portfolios invest. They only ever do so for the maximum ROI. This is not the world we now live in.
It is not how Equity (or any other form of Crowdfunding for that matter) works. Certainly not for ordinary people who are far from stupid but more than happy to risk £10 from their disposable income or £100 from their savings to support a venture or a local business etc. Because they want to. Should they really be prevented by law and regulation – just in case we might ‘scare the horses’?
Not made to. Not forced to or coerced in any way. Not misled into doing so. They’re not the point and is easy enough to prevent – as research from the World Bank has made clear. despite this ordinary people are to be PREVENTED from doing so by this officious officialdom – a nanny state?
Law maker and regulators are by nature – understandably perhaps – conservative beasts. But there is a great big red flag here. We’ve all known for quite some time that the digital age was coming. It’s been clear for at least the last couple of years that tech based financial innovations holds great promise for renewal, innovation and growth. It’s now clear that as Crowdfunding, social media and the web meet money and finance this innovative collision hold huge promise for democratising finance and can bring new freedoms – and opportunities – to ordinary people.
The FCA want to put a man with a red flag in front of every vehicle. To actually prevent any of this from happening in case a horse rears or an accident might happen. They certainly don’t want any of the unsophisticated ‘lower orders’ in any driving seat.
Most of us, 90% plus, do not run an investment portfolio. We have income, savings, debts and a mortgage. The FCA’s idea of letting ordinary people into crowdfunding is to kindly allow us to put no more than 10% of these portfolios we don’t have into equity Crowdfunds. Making the crowdfunding platforms police us to make sure we stay in line.
This threatens to kill the latest – and perhaps most needed – form of innovation of our time, here in the UK for at least a generation. A revolution that could create millions (yes millions) of new jobs and create many thousands of new businesses. As NESTA pointed out at the end of last year Crowdfunding – if properly supported and nurtured – could make a major impact on the UK economy in the years to come.
It begs the question whether the FCA’s blindness is ignorance, arrogance or wilful. Do they not see because they don’t care or because – as some say – they’re in the the pockets of the banks and vested interests who’ve much to lose?
Barry Sheerman MP, who chairs the new All Party Parliamentary Group (APPG) on Crowdfunding and non-banking finance, has challenged their approach calling it ‘paternalistic’. He’s right it is. But this is no small matter. It’s so paternalistic it takes away a new freedom to solve a problem that has yet to exist for the FCA, not for society. That’s a very poor exchange indeed.
This is a global change – it will happen. But what is at stake here – again – is Britain’s ability to lead the world (rather than throw that lead away). Unnecessary suffering and ‘austerity’ (aka poverty) for a whole generation or more of ordinary people. The majority – who are untouched by this fragile, thin and (if the truth’s known) simply statistical ‘recovery’ which papers over the cracks of more ‘austerity’ to come.
This is not just about elitism and the privileged few protecting their turf at a huge cost to the economy and ordinary people. Or even the Crowdfunding industry – although it certainly threatens that more than has yet been appreciated. It’s really about us all – the crowd. Our future and the world our children and grandchildren will grow up in.
It’s also about what happens next. Can we – after all – be allowed to embrace a change as big as anything the world has yet seen which could transform the economy and make a real impact for ordinary people, reducing poverty and democratising jobs and finance. Why should that be prevented?
It should be this consultation that is shown the red flag. There are better ways – we know what they are and how to apply them. People should be informed and warned of risks. They should not be prevented for taking them if that is their choice – especially when it can do so much good (rather than just padding the pockets of the bookies). There are simple and effective ways to do this.
Stephen Hazell-Smith, a man with 30 years experience of small company investing has explained how this can be achieved. “Conventional wisdom says that risk warnings are ignored because nobody reads them. Of course nobody reads them as they always run to several pages of closely written type. The following stand alone text, placed at the start of the investor process is crystal clear in its meaning and message: “Please confirm you understand that if you proceed you may lose all or part of this investment. If you understand and agree to this record your consent by entering this code below:” Thus ensuring active consent is given and recorded. The technology now exists to do this securely and without fuss or too much friction.
This time the red flag must be shown – clearly and equivocally – to the FCA. By us all. Not just ‘consumers’ but also politicians, practitioners and everyone who’s concerned with enabling entrepreneurs to rescue our economy – as David Cameron demanded not so long ago. We wont get any better chance – we may not get another – to end poverty and austerity for the nine million (and counting) known to be in crushing poverty right here in the UK.
Or we can revert to the status quo, as the FCA wish, and make it a more comfortable world for them and their clients. The economy belongs to us all – the crowd. It’s time for the politicians to speak up and let us all know which constituency they really represent.
Barry James is the founder of the Social Foundation. Founded in 2012, the organization was created to further research, education and policy initiatives into the new, post-crash economy and “Crowdnomics”. James also created “Crowdfunding: Deep Impact”, the UK’s first national conference held in February 2013 which led to the influential Westminister Crowdfunding Forum. James is a frequent speaker on crowdfunding, entrepreneurship and innovation.