So there you have it. The FCA has launched a consultation into crowdfunding platforms.
The sector is growing at a rate of knots, so it’s both understandable and encouraging that the regulator is taking an interest.
We’ve certainly welcomed it as it’s proof positive that the crowdfunding sector has come of age.
But the FCA shouldn’t choke off such an exciting new form of investment with heavy-handed regulation.
Neither should it, in our opinion, try to restrict crowdfunding to sophisticated investors, high-net-worths and people who have received regulated investment advice from an independent financial adviser.
Now don’t get me wrong, I think higher-net-worth individuals will probably make more use of crowdfunding platforms than others.
I also think IFAs will play a key role in the evolution of the sector, adding value for their clients and providing an additional level of input and expertise, for example, by ensuring crowdfunded investments are limited to only a small part of a client’s portfolio and that their clients fully understand the risks associated with different platforms.
But at the same time I do think there’s a misconception that people who only want to invest small amounts – £10 or £500, say – are somehow naive and do not know what they are doing.
This, I feel, is a terribly conceited view of what is the first truly democratic form of investment.
There is, of course, always a risk that someone could fail to understand the risks involved in a specific investment – this applies to many investments, not just those available through crowdfunding platforms.
To address this, it is important to emphasise very clearly to prospective investors that they could lose all the money that they invest. We tell them this on multiple occasions during the application process. We do not hide this fact and never would.
I suppose what I’m trying to say overall is that, while we welcome a consultation that’s aimed at ensuring transparency and consumer protection, it’s important that over-regulation isn’t allowed to kick the crowd out of crowdfunding.
If that were to happen, the very essence of this new and exciting form of investment would disappear.
Goncalo de Vasconcelos is founder of the equity-based crowdfunding platform SyndicateRoom