RegulationDec 14 2015

FCA wants your views on social investments

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FCA wants your views on social investments

The Financial Conduct Authority is calling for contributions on how regulation is working in relation to the social investment market.

Social investment is a term used to describe investments where the aim is to provide a wider social benefit, rather than the primary driver being a purely financial benefit to investors.

Christopher Woolard, the FCA’s director of strategy and competition,explained the market is developing quickly and regulation needs to keep pace.

He said: “We want to explore the impact of our regulation to ensure it isn’t inappropriately restricting growth but continues to protect investors.”

The wide-ranging call for input asks for social entrepreneurs’ experience of raising capital, along with financial advisers’ views on recommending social investments and views about the potential risks to consumers investing in this sector.

Comments must be received by 11 March 2016, after which the FCA will consider whether it is necessary to clarify the requirements that apply to social entrepreneurs and the protection available to consumers for social investments.

City of London research cited by the regulator shows that the UK social investment market is currently worth just over £200m, although retail investors currently have a minority stake.

That study, published last summer, also found that rules around investment suitability were deterring advisers from recommending social investments, impacting on growth in this sector, according to the Social Investment Research Council, which carried it out.

When the regulator previously consulted on its approach to crowdfunding in 2013, some respondents from the social investment sector raised concerns about the potential impact of crowdfunding regulation on the growth of the social enterprise sector.

In a policy statement in 2014, the FCA said it would comment further on the social investment sector, with this call for input being the follow-up to this commitment.

In January last year, Big Society Capital’s chief executive Nick O’Donohoe claimed that the FCA had been engaging with the financial services industry to help bring social impact investing to the UK.

However, he admitted that advisers were still be hesitant to get involved with the nascent market, stating there was “no shortcut to a five-year track record” and the entry level of investment was still quite high.