|Equity Crowdfunding in the UK
By: Luke Willoughby
On April 1, the United Kingdom took a step forward in its crowdfunding policy, putting more distance between itself and the United States in debt and equity legislation. The UK has achieved one of the world’s largest crowdfunding marketplaces, due in part to its (relatively) progressive and rapid policymaking.
Details of the UK’s new equity legislation and differences from the proposed U.S. structure include:
But despite the respective progress, the unifying and democratizing potential of crowdfunding drives many independent leaders to be cautious of any government intervention. Barry James, the Director of the Social Foundation and CEO of The Crowdfunding Center claimed, “The FCA, like the SEC, prefer to reassert the status quo.” Andy Haldane, director for financial stability at the Bank of England, has repeatedly insisted, “this re-laying of the financial landscape should be nurtured and given time.”
To obtain the right to invest in equity crowdfunding, UK investors can complete a series of online tests demonstrating their financial competency and understanding of risk. In the U.S., investors must be credited with certain financial status and reoccurring filings with the SEC.
The UK’s only financial restriction is to limit the investment of any individual to only 10% of their asset portfolio. There are no limits to the amount a company can raise. But the U.S. proposal is plagued with multiple layers of restrictions for both investor and company, including that a company can raise only $1 million and the investor may only commit $100K — if they are in an accredited status, during any 12-month period.
The UK platforms carefully review each crowdfunding business model and management team to eliminate potential for fraud at the start. The U.S. does not allow platforms to screen companies, regardless of their qualifications.
Dating back to 1993, the UK has implemented favorable small business investment tax programs for individual investors. Crowdfunding has been included in this umbrella, where investments can be written off and capital gains left untouched. In the U.S., JOBS Act legislation is a step in the right direction with incentives for small businesses, but individual investors remain omitted for the most part, especially with respect to any benefits with capital gains achieved.
It’s to be expected that a public excited over new potential would clash with a government tasked with protection and conservation. But unlike traditional controversies, it isn’t direct stakeholders who are the legislation’s most outspoken skeptics and activists, or even politicians in a PR scheme. Rather, it is the lawmakers and public figures themselves speaking about the potential benefit for modern culture. In addition to the bank director Andy Haldane, one of the Prime Ministers chief advisors in public health and small business development, David Young, has been an outspoken advocate of a more relaxed policy.
The UK policy will be reviewed again in 2016. The U.S.’s initial policy is scheduled to take effect at some point in 2014, although the 90-day review period of last October’s proposal is now overdue.
Luke Willoughby works in the digital media landscape of New York across varying agencies and brands. He also has a background in video and content production, and is invested in the resurgence of the full-service advertising agency and the associated opportunities for the marketing industry. Originally from Denver, Colorado, he's a fan of most outdoor activities and otherwise enjoys reading and film.
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