The Financial Conduct Authority (FCA) has come under fire for its stringent regulation of the crowdfunding industry, which critics claim is stifling investment and cutting off vital funding streams for small and medium-sized enterprises (SMEs).
The UK Crowdfunding Association (UKCFA) has warned that these regulations could cost the economy billions of pounds in lost investment.
In a letter to Tulip Siddiq, the City minister, the UKCFA argued that the FCA’s reforms are discouraging investors by making the regulatory framework too restrictive. The group, representing over 20 crowdfunding platforms, called for an independent review of small business finance to address the issue.
Bruce Davis, chairman of the UKCFA, highlighted the UK’s position as one of the most highly regulated markets for crowdfunding globally. He warned that this over-regulation is deterring investors and driving some companies to seek funding in European jurisdictions with less restrictive regimes.
The FCA’s reforms include measures such as risk warnings, bans on “inducements” to invest, tougher appropriateness tests, and “frictions” designed to prevent impulsive investment decisions. However, these changes have reportedly increased marketing costs, reduced platforms’ ability to attract new investors, and made fundraising uneconomical for some platforms.
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