Earlier this year, CI reported on a consultation in the UK on Public Offer platforms [POP]. This is part of an initiative to improve the capital-raising environment for firms in the UK.
Currently, in the UK, issuers typically are capped at pursuing online securities offering at €8 million beyond the amount a prospectus is required. The UK FCA says that over time this amount has stifled firms from raising beyond this amount while not actually diminishing any potential harm. The goals of the new regime are as follows:
- rebalance regulation in a way that promotes effective capital raising
- ensure market integrity
- provide an appropriate degree of consumer protection
In general, this is part of a broader initiative to boost innovation in the UK and create a regime that not unduly burdensome for firms in need of capital.
As the UK already has a fairly well-established securities crowdfunding sector, this may create an opportunity for these platforms to expand operations as they may benefit from new rules.
The consultation just closed to feedback on October 18th, and results are expected in the coming weeks.
The FCA notes that there are currently 27 regulated crowdfunding platforms in the UK, and they anticipate that all of them will investigate the newly proposed rules.
While not all crowdfunding platforms will pursue new approval as a Public Offer Platform, the FCA believes that some will apply for the new permissions – up to 14 platforms, utilizing the new rules to enable securities offerings above £5 million.
The FCA states that from July 2018 to December 2022, just 31 companies (7 firms a year) used an investment crowdfunding platform to raise an amount over £5 million. The majority of these larger raises took place on just two platforms.
While anticipating the existing crowdfunding regime will continue to be utilized the new rules could boost public offers – although the regulators have not provided an estimate as to how much activity new rules will generate.
Stated in the consultation:
“We expect that Public Offer Platforms could attract a wider population of firms than the current population of private companies raising larger amounts of capital on crowdfunding platforms. In HMT’s Impact Assessment of the new Public Offers and Admission to Trading Regime (POATR), they showed that the €8 million threshold (at which private companies are required to produce a prospectus) has effectively acted as a cap on private companies who wish to raise capital through public offerings. The removal of this requirement in place of the new legislation and exemptions regarding POPs may reduce the disincentive to raise capital. As such, even in the absence of further intervention from the FCA, we expect an increase in capital raising in this space.”
It appears that policymakers believe changes may boost the number of issuers and incentivize established crowdfunding platforms to enter the new sector. This may also include focusing on more professional investors.
Once the new rules go into effect, they may make it easier for smaller firms to raise money online and provide a new segment of business for securities crowdfunding platforms.
