Government backs crowdfunding sector with plans to cut to the red tape
The government is “committed to ensuring” that the crowdfunding sector “continues to thrive” with plans to cut the red tape for raising finance.
In its UK Prospectus Regime Review Outcome, the Treasury said it plans to remove the current requirement for a Financial Conduct Authority (FCA) approved prospectus to raise finance for deals over €8m (£6.67m) in size.
The government said it wishes to increase the capital raising options available to private companies, enabling them to grow quicker.
Instead of using a prospectus on offers over €8m in size, securities will be allowed to be offered to the public provided the offer is made through a crowdfunding platform authorised for this purpose.
The Treasury intends to create a new regulated activity covering online platforms which offer public securities, such as an equity crowdfunding platform.
It will then be down to the City watchdog to set specific requirements for these platforms, such as the levels of due diligence.
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“As it takes forward this reform, the government is committed to ensuring that the UK securities-based crowdfunding industry continues to thrive, by promoting competition, protecting consumers, minimising costs for issuers raising funding, and ensuring any regulation is proportionate,” the Treasury said in the paper.
Bruce Davis, director of the UK Crowdfunding Association (UKCFA), welcomed the Treasury’s proposals to change the prospectus exemption threshold and said this was something the UKFCA campaigned for.
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“The proposals mark a potential new chapter for crowdfunding to fulfil its promise to provide real choice and competition for both businesses looking to raise finance and investors looking to put their money to work directly in the real economy,” he said.
“The UKCFA has long argued that the prospectus exemption threshold distorted the market for business and project finance, and we welcome the push to develop a new crowdfunding permission that will enable platforms to scale up their ability to raise money, and to allow more mature businesses to access alternative finance.
“There is much work to do, and we look forward to working with the FCA to create another world leading breakthrough for new forms of finance and investment.”
The Treasury also proposed changes to wholesale capital markets to give firms greater choice about where they can trade and allowing them to get the best price for investors.
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“We are using our post-Brexit freedoms to create the right legislation to support an even stronger financial services sector – one that is open, green, competitive and technologically advanced,” said John Glen, economic secretary to the Treasury.
“Our plans to improve our wholesale markets regulation will liberate businesses from unwieldy and stifling rules that hold back their ability to grow and innovate, while our reforms to the prospectus rules will replace the current system with a new, simpler, and more agile regime.”