The UKCFA (UK Crowdfunding Association) recently sent a letter to Tulip Siddiq, the Economic Secretary to the Treasury and City Minister, slamming the government for excessive regulations which are crippling the securities crowdfunding industry.
It has been widely reported that Bruce Davis, Chair of the UKCFA, forwarded a missive describing the regulatory environment as overly restrictive.
The UK has long been viewed as a top global Fintech hub – including online capital formation. Investment crowdfunding launched in the UK long before it emerged in the Americas. But over the years, concerns regarding the need for the government to save us from ourselves have crept into the jurisdiction, thus undermining the industry the country trailblazer, according to the UKCFA.
It was reported that Davis told Siddiq,
“the UK is now seen as having one of the most highly regulated markets for this type of investment in the world – overtaking even the US which has long been a laggard on supporting the benefits of crowdfunding … The impact of these changes has been felt in the increase in marketing costs for new issuance of investments, which in some cases have become uneconomic and left platforms reliant on the existing investors.”
Davis previously operated an online investment platform, Abundance Investments, that targets the green sector.
While private securities typically involve greater risk, returns can outweigh these challenges on a portfolio basis. Republic Europe, one of the largest investment crowdfunding companies in the world, is a platform that shares the performance of securities listed on its platform with a fair number reporting notional returns that are pretty dramatic.
Additionally, the UK benefits from several tax exemptions that can mitigate intrinsic risk for investors while supporting an innovation-driven economy – a key policy objective for many countries.
Davis notes that the UK government aims to encourage greater investment in securities by the broader public. In his opinion, the government is falling short, and more proportionate regulation that does not undermine the private securities market is needed.
The UKCFA’s mission includes the following:
The UKCFA believes that the [regulatory] authorization process can create unnecessary barriers to entry and so restrict effective competition and innovation. The UKCFA seeks greater clarity and transparency during the authorization process, including information about how the process works, what is required, and how long it will take.
Costs and Risks: The UKCFA is concerned that the complexity and uncertainty of the authorization process can require crowdfunding platforms to hire external consultants and lawyers to a greater extent than in other sectors. This adds to the cost and risk of the authorization process.
In general, the association supports regulations that are proportionate to the risk.