Crowdfunding under threat from FCA regulation as interest in sector soars

The future of crowdfunding could be under threat due to Financial Conduct Authority (FCA) proposals, industry experts have warned.

Nick Clegg

Regulatory approaches to crowdfunding need “a radical rethink” in order to protect investors from falling foul of restrictive regulation, delegates at the Crowdfunding: Deep Impact conference heard.

Barry James, founder of The Crowdfunding Centre, told The Yorkshire Post clarity was needed from the FCA on social media use.

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He said: “Crowdfunding is already very big, and it’s growing. Around £100,000 is being raised an hour. It’s transforming ventures for entrepreneurs, it’s changed the journey and the economics of start-ups.”

The FCA has reserved the right to class publicly backing a project as a financial promotion that falls under authorised activity rules.

This could lead to people being prosecuted for communicating their investment on social media.

Deputy Prime Minister Nick Clegg’s endorsement of proposed Venture Funding Hubs could be classed as an illegal promotion in this respect, Mr James said.

“Something is wrong when support from the Deputy Prime Minister cannot be distinguished from an illegal financial promotion,” Mr James said.

“The rules were written before the internet existed. We need some clarification on this changing sector,” he added.

The conference was held in Sheffield, which was ranked ninth in the UK for crowdfunding transactions between July and September, when $415,800 (£261,000) was raised for projects.

Recent crowdfunding successes in the region include the Leeds Indie Food Festival, which raised £6,750 in nine days, and home security Cocoon, which hit its £65,000 target within a week.