We’re delighted to announce that following the Financial Conduct Authority’s (FCA) public consultation last autumn, which determined their regulatory approach to equity crowdfunding, we’ve now implemented the required changes, which allow ordinary people to invest through Crowdcube. It is critical that equity crowdfunding is accessible to everyday investors, and the FCA’s new regulations on equity crowdfunding, for direct investment sites such as Crowdcube, achieves this.
To help you understand the changes we’ve written some short, plain-English summaries of the four main groups. So who can invest?
Anyone can become an Everyday Investor. You just need to agree to not make more than 10% of your investments (including savings, stocks, ISAs, bonds and property excluding your primary residence) into company shares that cannot easily be sold, such as the ones listed on Crowdcube. This is why the Financial Conduct Authority refer to them as ‘Restricted Investors’. Everyday Investors are the ‘crowd’ and the majority of investors will fall into this broad category.
An ‘Advised Investor’ is someone who has an FCA regulated advisor, perhaps an Independent Financial Advisor (IFA), and will receive advice from them about each investment they make on Crowdcube.
Self-Certified Sophisticated Investors:
This group is for people who have invested in more than one unlisted company (including via Crowdcube) in the last two years or been a member of a business angel syndicate or network for at least six months.
High Net Worth individuals:
If you earn more than £100,000 a year or have net assets of more than £250,000, the High Net Worth category is probably applicable to you.
At this point it’s worth remembering that these are summaries only and when members join Crowdcube they’ll see the full descriptions so they can choose the group that’s right for them.
Taking the crowd out of our competitors?
It was disappointing – for the industry – that the changes in regulation were not good news for all equity crowdfunding players and resulted in restrictions that prevented ordinary people from investing on their platforms. The two categories that allow ordinary people to invest on Crowdcube do not apply to all equity crowdfunding platforms. For example, seed equity crowdfunding sites that always operate ‘Unregulated Collective Investment Schemes (UCIS)’ (or act as a middleman or Nominee for investors) remain restricted and are ONLY allowed to deal with professional clients, high net worth individuals and sophisticated investors following the consultation.
During the public consultation last year the FCA stated that they:
‘consider UCIS to carry particular risks’
and cautioned that:
‘They [UCISs] are not subject to the rules for regulated collective investment schemes that govern, for instance, investment and borrowing powers, disclosure of fees and charges, management of conflicts of interest, a prudent spread of risk, and other investor safeguards. Risks to capital may also be opaque and performance information may be unavailable or unreliable. Governance controls may be weak, heightening the potential for a product to fail.’
For these reasons, legislative and regulatory restrictions have been applied to this approach. Investors who classify themselves as a ‘professional client’ on these alternative platforms also waive their right to the Financial Services Compensation Scheme (FSCS).
Crowdcube leads the way
As the world’s first equity crowdfunding platform, Crowdcube has led the cause for crowdfunding to have its own bespoke regulation, which is seen as a significant step in the evolution of the industry. These changes will help build market confidence and will be the benchmark for other countries to imitate.