Crowdfunding: A policy response
The purpose of this submission is to address contemporary issues related to the creation and maintenance of an efficient and effective regulatory environment for the promotion of a form of early-stage entrepreneurial finance termed ‘crowdfunding’ . The submission will focus exclusively on Equity Crowdfunding (ECF is also termed ‘crowdinvesting’). Investment-based crowdfunding is defined by the UK’s Financial Conduct Authority (FCA) as “people invest directly or indirectly in new or established businesses by buying shares, debt securities or units in an unregulated investment scheme”. Of the five main types of crowdfunding, only equity and loan based forms fall within the FCA’s regulatory remit. In a legislative sense, ECF which exhibits a number of different structures and activities, is acknowledged to be legislatively more complex than other variants of CF.
Equity crowdfunding is one of the fastest growing types of CF. In Europe, ECF had a compound annual growth rate of 50% between 2010 and 2012. In the UK, ECF was the fastest growing category of CF with an average growth rate of 410% between 2012 and 2014 and with a total of £84 million raised for investment by ECF platforms in 2014. However, business debt (£749 million) and consumer debt crowdfunding (£547 million) in the UK currently dominate profits-based CF (NESTA, op. cit.).
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