The Things Regulators Say in the UK & USA

Martin Wheatley FCA Quote Regulations

Crowdfunding Sees Growing Regulatory Support.

“We are now looking for areas where the system itself needs to adapt to new technology or broader change – rather than the other way round. We want to ensure that positive developments, the ones that promise to improve the lives of consumers or clients, are supported by the regulatory environment. In other words, we want to create room for the brightest and most innovative companies to enter the sector.”

Month after month of wrangling and foot-dragging, now running into years over the JOBS act and Title III especially, anyone could be forgiven for making a double-take on hearing those sorts of word coming from the SEC. And they’d be right in fact. They’re not from the SEC – or not yet – they’re fresh from the UK’s regulator the FCA this last week. They came as almost as much of a shock for some of us in the UK too.

While we have been in the fortunate position of having crowdfunding in the UK for quite some time now – since Crowdcube launched in 2011 – this is absolutely no thanks whatsoever to our regulator who have, until now, gone out of their way to ‘put the book in’ to Crowdfunding in all it’s forms. The first thing they did right at the very beginning was to put out a press release that included advice on ‘How to Protect Yourself’ from Crowdfunding – as if it were some kind of virus. And not much has British Penny Queen Elizabethchanged since – until now.

Has the ePenny Dropped?

So what’s changed? More importantly will it last and does it matter? Only time will tell for sure but what is happening here is fascinating and most probably does have implications elsewhere – not least in the USA and Europe. Especially as it’s no secret the US, UK and other regulators have been co-ordinating their approach in this area for quite some time.

We’ve long been aware that while the government (and all parties) have grown increasingly interested in, and supportive of, the potential of Crowdfunding – the Business Secretary Vince Cable gave a very supportive address to our first Nation Crowdfunding Conference last year. The regulator Vince Cablehas seen it from a very different perspective – creating a very real tension.

This was clearly seen when in the Westminster Hall debate in December last to mark the closing of the FCA’s consultation period, Treasury Minister Sajid Javid, speaking on behalf of the Government criticised lobbying to increase regulation as a means to raise barriers to entry to new entrants and Treasury Minister Sajid Javidmade it clear that no unnecessary barrier must be placed in the path of the industry’s growth by the regulator. When in due course the results of this ‘consultation’ were published they differed hardly a jot – apart for the odd change in terminology – from the very proposal before the consultation, which had been so heavily criticised.

Yet this week they say they are now going to establish what I – writing almost two years ago – called an Innovation Unit – a hub to nurture “the brightest and most innovative companies to enter the sector – an incubator to support innovative, small financial businesses” offering “advice and support for businesses bringing new models of financial service to market”.

The Obvious Question: Why?

While I’d like to believe that the recent publication of the first ‘eFunding – The State of The Crowdfunding Nation‘ report – providing a mountain of hard data and describing, as it does, just the kind of eFunding and eFinance revolution which they seem to have in mind, and defining these terms Escalator by Stig Nygaardfor the first time – had much to do with it, there are other factors and indeed candidates.

Could the ePenny be dropping? 

Could it now be dawning that Crowdfunding is creating a new eFunding escalator “that reaches the ground floor, where most of the people are”.

Or to put it another way;

 “Trend not hype – Crowdfunding is not just the latest hype, but instead a trend that is still in its infancy…. [this] alternative for funding projects and companies via and with the aid of modern internet technologies will increasingly go viral and become established. Above all, the movement is being driven by the accelerating penetration of the digital economy in all aspects of life and by the growing desire of many people for (greater) mobility, participation and interaction. Last but not least, the crowdfunding movement will also help to eliminate a bottleneck found not only at the national level: the scarcity of liquidity available to entrepreneurs for early-stage funding”

Not my words – those of the authors of Deutsche Bank’s understandably bank-centric ‘Does Crowd Euphoria impair risk consciousness?’ report, just published. But that does sound like an ‘eFunding escalator’ to me!

Chancellor of the Exchequer George OsborneMeanwhile – with a UK election a year from now, our Finance Minister (Chancellor George Osborne) has just announced a root-and-branch review promising a shake up of this very regulator to ensure it is striking the “appropriate balance of fairness, transparency, speed and efficiency”. Could this – combined with the above mean that at last the ePenny is in fact dropping – and if so how long will it be before it drops elsewhere? We have seen – in the much more open approaches of some European regulators such as France – that they may have cottoned on to the fact that this is a structural change – ‘trend not hype’ – and seen which way the global winds are blowing.

Martin WheatleyHow long might it be before the SEC realizes – or are made to see – what is increasingly clear:

That as  Martin Wheatley, head of the FCA, said by way of introduction to Project Innovate,

 “It’s an imperative for regulators to be standing on the right side of progress…to make sure that positive developments, the ones that promise to improve the lives of consumers or clients, are supported by the regulatory environment.”

I couldn’t have said it better, or more clearly, myself.


barry-jamesBarry James is the co-founder of TheCrowdfundingCentre and 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.

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