June 19, 2014

Osborne’s FCA threatens a nascent industry

Osborne’s FCA threatens a nascent industry

Recent regulations imposed on the crowdfunding industry threaten to unnecessarily impede an innovative and nascent industry, writes Comment Central. 
In the aftermath of the financial crisis, the then Shadow Chancellor, George Osborne, promised to scrap the existing tripartite system of financial regulation.

Branded “incoherent” and “without clear lines of accountability”, he instead proclaimed an alternative architecture that would lead the “British economy from crisis to confidence”.

Introduced only fifteen months ago, the new regime is based on three core pillars, each tasked with differing areas of regulatory responsibility. One of these pillars, the Financial Conduct Authority (FCA), is charged with protecting and enhancing confidence in the financial system.

In April this year, the FCA heaped a host of new restrictions on the crowdfunding sector.

Crowdfunding is an emerging online industry that, as the name suggests, allows small businesses and charities to raise money by taking small investments, loans or donations from a large number of people.

The new innovation has been hailed by industry experts and investors alike. Andy Haldane, Director of Financial Stability at the Bank of England has predicted that by directly connecting savers and entrepreneurs, banking middlemen become surplus to requirement (you can sense the mouths of banker bashers salivating at the prospect).

As well as imposing relatively modest capital requirements, the FCA’s rules require new equity investors to be restricted to investing no more than 10 per cent of their net assets.

The restrictions on equity investors in particular have come in for heavy criticism. Stephen Hazzell-Smith, fund manager and founder of the Alternative Investment Market (AIM) has described the new rules as “nonsensical and unenforceable”, pointing out that “people are allowed to bet money on the horses they want, so why not the companies?”

Former Downing Street adviser and now Champion of TechCity, Rohan Silva, is similarly scathing.

The move by the FCA is in stark contrast to other jurisdictions. In the US, President Obama – in a rare display of bi-partisan unity – has teamed up with the Tea Party to endorse the industry. In France – widely regarded as a market leader in crowdfunding – the new Socialist Prime Minister, Manuel Valls, is an avid supporter. Even the European Commission, that great Belgian bastion of bureaucracy and red tape, is on board.

In April the Commission published a new policy paper extolling the virtues of crowdfunding. It described it as an effective way to finance small companies and stimulate growth. The paper was unashamedly titled: ‘Unleashing the potential of crowdfunding in the European Union’ and went on to warn member states against allowing their national regulators to stifle the new phenomenon.

So now we find ourselves in the profoundly ironic scenario of both the European Commission, and a French Socialist Prime Minister advocating a more free market approach than our own regulator. A situation where people can put more money on Burkina Faso to win the World Cup than they can on a new business start-up offering a realistic potential to deliver much needed jobs and growth to the British economy.

How have we arrived at this situation?

One credible explanation is that the rules and restrictions introduced by the FCA are due to it being a new body. All too aware that they have been formed from the ashes of a failed predecessor, the Authority’s Executive Committee feel a compulsion to overregulate and project a sense that the new system is working and is anything but complacent.

Margareta Pagano, Editor-at-Large at the London Evening Standard has called on the Treasury to step in and overturn the FCA’s rules. This is unrealistic. Such a move would fundamentally undermine the credibility of the new body.

Instead, the main players should focus their attention on alerting policy makers, politicians and journalists to the pitfalls further restrictions could cause their promising industry, whilst also highlighting the subsequent detrimental effects this will cause the still recovering UK economy.

5.00 avg. rating (93% score) - 1 vote
Comment Central
Comment Central
Setup in 2016, Comment Central is a forum for policy debate and discussion. Editorially free-market, the site is intended to mirror the portfolios of Government, it therefore covers a broad range of topics, including commentary and analysis regarding the latest healthcare reforms, to musings about the state of play in US politics.
  • Shadow Warrior

    Hammond is continuity Brown. He is a hand-wringing lefty looking for clever wheezes to raise more tax in ways that people don’t immediately notice.

  • captainslugwash

    I predict the Budget will attempt to show the Left how caring the Tories are, and it will be funded by screwing over the working man.
    If Corp Tax comes down, I bet Divi tax will be going up.
    I would love to be wrong.

  • skynine

    We really need to look at tax credits, in particular in work tax credits that encourage people to work part time to preserve the benefits. 45% of women work part time and I would hazard a guess that tax credits are the main cause. This leads to low pay, low skill work in supermarkets and the retail sector including coffee shops. The government needs to get back to the employer paying people to do a job for economic reasons rather than to get onto the tax credit ladder. Like all government benefits it distorts the market and diverts government expenditure into non productive areas.
    The refrain that the government has cut expenditure is not true, it increases every year as more and more goes into welfare.

  • MrVeryAngry

    fat chance

  • MrSauce

    So, when wouldn’t we want a ‘budget for growth’?

  • Rob

    I note that the UK Government has just slapped on a 25% tax charge for anyone moving abroad and wishing to move out their private pension from the UK.

  • SonofBoudica

    The Remoaners will do their utmost to sabotage the Government’s negotiating position. They do not want a successful outcome; they want a failure. They want to be able to scream “Told you so!” from the rooftops.

  • EnglandLaments

    Thank goodness for Andrew Neil, the one media hack who scares the pants off the established politicians. He was spot on with Heidi Allen!

  • joshuafalken

    I had a very long, hard, studied and considered look at the hope, care and aspirations of all Europeans, before I voted to get the UK out of the toxic grasp of Brussels.

    The European Union and it’s charge of “ever closer union” has borrowed and spent its way to oblivion, whilst enslaving the working and middle classes in debt.

    The central control mantra of the unaccountable Brussels ruling elite, delivered through a mixture of socialism, globalism and corporatism is entirely responsible for the populist revolt by the millions of “Just About Managings” across Europe.

    We must remember the ultimate goal of socialists, globalists and corporatists is control, not prosperity. see https://mises.org/blog/goal-socialists-socialism-—-not-prosperity.

    Social equality and economic growth always fail under central control and fighting against the Brussels doctrine on behalf of all Europeans is why I voted for Brexit.

    Britain has a long history of helping Europeans depose tyrants and Brussels is just the latest incarnation.

    Britain is the most racially advanced and accepting society on the planet. We welcome those in need and those that can help us with open arms and a smile; that will not change.

    We are also one of the most innovative, talented and open societies in the world, which why everyone wants to live here. However, we cannot fit everyone in, so we have to have clear, balanced and fair immigration policy which is where the arguments start between the monetarists and humanists will never be reconciled.

    I thought long and hard before coming to the conclusion that leaving the EU was in the best interest of all Europeans, as Brussels is toxic and cannot be reformed from within.

    Also, I find it insulting that people who voted Remain have insufficient faith in British ingenuity, compassion and skill to get a good deal for us and see the Europe that we love get a better deal from Brussels and the reform that European people deserve. https://mishtalk.com/2017/03/29/bad-brexit-deal-better-than-no-deal-mathematical-idiocy-odds-of-no-deal/ and https://www.worldheadlines.info/2017/03/after-brexit-9-reasons-to-be-bullish-on-great-britain/

    The politics of left verses right are dead because neither have delivered the promised economic growth and social mobility for anyone, but themselves. The populists are not selfish per-se, they just want to take back control of their own destiny that left/right politicians have freely given away and/or exploited for their own ends. In my constituency, the local residents group are taking over the councils as politicians ignore voters, so Westminster should beware of the well-organised, local resident independents at the next election. This is a peoples revolution which should be shouted from the rooftops, but liberals remained deafened by the socialist, globalist and corporatist “vested interests” that have spectacularly failed us and are obediently crying foul and fake.

    There will be an initial unpalatable inflationary cost to fighting globalism and rolling back central control that few appear to have factored in, but dismantling failed left/right vested interests should eventually free libertarian socially-conservative capitalism from the shackles of TBTF corporatism to feed economic growth and social mobility.

  • agdpa

    The EU usually makes the wrong decision – on immigration, on freedom of movement, on the euro, on the Ukraine, etc. etc. Little hope it will get Brexit right.

  • brownowl

    Eh? Reference please!

  • Neil2

    Sod caring. Screw the spongers and breeders. Kill HS2. Stop all “green” subsidies. Slash “foreign aid” and walk away from the EUSSR with immediate effect.

  • Rob
  • John C

    What a confused article. It conflates surveillance by the security services with poor defences against fraud.

  • John C

    Err, it’s the UK that’s leaving the EU, not vice versa.

  • John C

    Me, now. ‘Growth’ is a manic obsession.

  • La Face Nord

    Mr Redwood – are you aware of the Biased BBC website? It’s been exposing their agenda for a long time, but I imagine you’ve been well aware of the BBC’s agenda for quite some time…

  • Contact Rvtech

    The post is great

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