Response to the FCA Crowdfunding Consultation

Yesterday the Financial Conduct Authority (FCA) issued a consultation on crowdfunding.

We at CrowdBnk welcome the FCA's regulatory approach, feeling it strikes the right balance between consumer protection and access to investment opportunities, and are very pleased to see it has proposed to keep the 'crowd' in crowdfunding.

At CrowdBnk, we already comply with the FCA's proposed measures for equity investments and have done so since we started trading. This includes the concept of Investment Caps for all appropriate investors, which we feel is the correct way to manage consumer risk.

When you "upgrade" to investor status on CrowdBnk, we ask you for some personal information and assess your understanding of the risks of investing in early stage companies.  We use this information to calculate a suggested limit, or "Investment Cap", on how much each of our members can invest each year in these types of companies.

We feel the Investment Cap should be more proportionate to the investor's understanding of risk (i.e. responses to the appropriateness test) and disposable income, rather than setting a blanket cap.

We'll be responding to the consultation in detail but think there's also a discussion to be had on standardised disclosure and due diligence on investee companies, enabling investors to make better judgments on their own as opposed to 'following' the crowd. We also feel there should be a further discussion on financial promotion rules in this area to ensure that they are clear, fair and not misleading.

At CrowdBnk, all projects undergo a robust vetting process before being listed, including standard KYC, AML, credit checks, review of business plans and financial projections, accounts audit (where appropriate) and entrepreneur interviews.

The longterm sustainability of this industry will be driven by the returns investors get over a period of time, which is directly linked to the quality of the underlying investee companies, emphasising the need for such due diligence.

We’d love to hear what you think about the FCA’s suggested regulatory approach. Please log in to comment and tell us what you think.