CROWDFUNDING is huge in Scotland; craft brewer BrewDog has raised more than £20 million, FreeAgent secured £1.2 million and just last month Innes and Gunn smashed its £1 million target in 72 hours.
In 2015 1,273 Scottish businesses and social enterprises raised more than £27 million – and that’s not including the millions raised by BrewDog that year.
But crowdfunding as we know it is changing, facing a further crackdown from the financial services watchdog. If the FCA goes ahead next year with the additional changes to legislation being proposed, then we could see growth in the industry slow and companies and social enterprises suffer as a result. They most certainly won’t have the opportunities that BrewDog and Innes and Gunn have had.
The FCA first introduced legislation in 2014. It claimed it wanted to create a “proportionate regulatory framework that provided adequate investor protection whilst allowing for innovation and growth in the market” and went ahead with strict legislation after consultation and in defiance of criticism by industry experts who warned they were taking the crowd out of crowdfunding.
Since then, their understanding of crowdfunding appears not to have developed, and this latest move has again angered those who believe the value – and opportunities – offered by crowdfunding will be gradually snuffed out.
The current proposals affect equity and loan-based crowdfunding; for the moment anyway, it appears that reward crowdfunding (often called seed crowdfunding because of its importance to small start-ups and early stage venture) has escaped the FCA’s controlling clutches.
Andrew Bailey, chief executive of the FCA, said: “Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified.”
The plans to consult again in 2017 have been met with scepticism and warnings that additional legislation will create “insurmountable new barriers to entrants”.
Barry James is founder and CEO of The Crowdfunding Centre. He was most vocal during the initial consultation and is already warming up to take on the FCA once again.
“FCA ‘consultations’ are widely known and well understood to be arse-covering exercises, to allow them to do whatever it is they want,” said James. “So as usual the real consultation, if any, starts here with this announcement.
“Andrew Bailey’s predecessor, Martin Wheatley, who clearly wanted to be the Sheriff of Dodge, famously declared he’d shoot first and ask questions later. Bailey, the FCA’s ‘new broom’ seems to want to play Dr. Emmett Brown – but rather than taking us ‘back to the future’ would return us to the past, the dark days of and before 2008/9 and the global crash, making life simpler for themselves by treating small innovators and start-ups in the same way as major corporates, so killing off real innovation and smothering fintech.
“They are creating insurmountable new barriers to entrants and forcing onto others burdens that in time will inevitably prove impossible to bear, so that they can be swallowed up by those same corporates.”
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