Crowdfunders caught in logjam for FCA approval

Crowdfunding firms are waiting an average of six months for authorisation by the Financial Conduct Authority amid a growing backlog of applications, according to the consultancy firm Bovill.

The FCA has approved only two crowdfunding platforms in the past nine months and the number of applications pending has risen from to 15 from three, according to information that the FCA supplied to Bovill, which advises firms on financial regulation.

Bovill said the delays and logjam of applications were a worry because the FCA only introduced its regulatory framework for crowdfunders last April.

The government has been trying to encourage new forms of funding for businesses after the financial crisis left many entrepreneurs complaining they had been abandoned by their banks. However, the FCA regards the fast-growing sector as risky because most start-up businesses fail.

Gillian Roche-Saunders, head of venture finance at Bovill, said: “The FCA wants to ensure quality control over business plans particularly relating to consumer protection, but it also needs to weigh that against the costs and uncertainties that the approval process causes for new businesses.

“The government are very keen to promote innovative financial technology and help fill the funding gap that exists in some parts of the market, yet many viable businesses may not get off the ground if it continues to take so long to be authorised.”

Crowdfunding is used by people and businesses to raise money from the public on the internet to support a business, campaign or project. The FCA regulates investment-based crowdfunding, where consumers buy shares or bonds in a business through an online platform such as Crowdcube.

The FCA regards this form of crowdfunding as hazardous and has warned consumers they are likely to lose all their money because of the failure rate for new businesses. The FCA also regulates peer-to-peer lending, which cuts out banks to let firms and individuals borrow from the public.

Two new crowdfundings in London’s febrile property market will be launched on Monday. Pocket, which builds affordable homes in London, is seeking to raise £1.5m by selling bonds through Crowdcube that promise to pay 7.5% interest a year over four years.

PropertyCrowd, a real estate crowdfunding platform, is seeking £1m of investment in a luxury new-build development in Fulham on the Thames. It said investors would receive their share of net rental income plus 75% of any capital increase when the development is sold in a few years.

Authorisation of crowdfunders is a two-way process and relies on applicants responding promptly to FCA requests for information as well as the regulator acting speedily.

Roche-Saunders said the backlog of applications was likely to increase from August when peer-to-peer lenders will have to apply for authorisation.

The FCA declined to comment.

Powered by article was written by Sean Farrell, for The Guardian on Monday 9th March 2015 00.01 Europe/London © Guardian News and Media Limited 2010


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