Britain's flourishing crowdfunding industry has lashed out at regulators, claiming it would be damaged by rules published on Thursday that aim to prevent ordinary investors spending more than 10% of their savings buying shares in peer-to-peer funded companies.
The Financial Conduct Authority (FCA) has moved to protect investors and stem the flow of cash from small savers towards crowdfunding platforms such as Indiegogo and Kickstarter, which raise £1,700 an hour in the UK for fledgling businesses.
From 1 April, investment in the shares of crowdfunded companies will be restricted to savers advised by professionals, linked to corporate finance or venture capital firms, or those certified as sophisticated or high net worth. Savers who do not tick one of these boxes will have to sign a statement saying they will spend no more than 10% of their assets – excluding homes and pensions - on crowdfunding in any given year.
Barry James, founder of the Crowdfunding Centre, said the rule would lock ordinary investors out. "Make no mistake, the infamous 10% rule, however it's dressed up, takes the crowd out of equity crowdfunding. Over the centuries Britain has led the world with inventions and innovations – and then thrown away that lead."
The French government last month relaxed the rules around this new form of finance, saying ventures could raise up to €1m (£827,951) per campaign per year without having to notify the financial markets authority, a higher ceiling than the previous €100,000 limit.
Stephen Hazell-Smith, a fund manager and architect of the Aim alternative investment market, said: "Last week the French regulator threw open the doors to its adult population to invest in equity crowdfunding as it pleases. How absurd to have the French beating us in a sector where we have the infrastructure in place to lead the world."
Peer-to-peer lending and crowdfunding is booming in the UK, with money pouring into projects including the Pebble smartwatch, the Ubuntu Edge smartphone and the Oculus Rift virtual reality gaming headset. British investors provided £480m in loans and bought £28m in unlisted securities in 2013, up 150% on the previous year.
Female entrepreneurs have been particularly successful in sourcing funds online, with 40% of all campaigns that reach their goal led by women, according to the Crowdfunding Centre, a higher rate than is found in traditional venture capital or angel-backed projects.
The FCA says it wants to protect the vulnerable, such as young and elderly people and those with learning difficulties, who may be "more susceptible to the emotive advertising highlighting the social benefits" of a venture. The FCA also believes younger investors may be "more susceptible to social network promotion platforms".
"Consumers need to to be clear on what they're getting into and what the risks of crowdfunding are," said FCA policy director Christopher Woolard. "Our rules provide this clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this innovative source of funding."
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