Friday, March 07, 2014

New rules for Open Capital in the UK

The FT on Mar 11 on Open Capital - with links to The 10 Principles
The UK's Financial Conduct Authority (part of what the FSA used to be) yesterday confirmed new rules on crowd funding (or as we prefer to call it in The 10 Principles of Open Business, Open Capital).

At first glance they appear sensible - and not a million miles away from how Seedrs operates (which as of time of writing Open Business, was the only FSA approved platform in the UK).

Like Seedrs the FCA rules impose a limit on how much you can invest - as a percentage of your investable assets. The FCA sets that limit at 10%. In other words it won't let you bet your farm on a Crowd Funding proposition (and the FCA are talking about security and loan-based crowd funding, not simply funding the production and purchase of an item) no matter how passionately you may believe in it.

This is actually a higher level of restriction than that placed on most people taking a punt on the stock market. For example, when I recently invested in Royal Mail shares, no one made me sit an exam to check I could afford to lose the amount I was putting up. You may therefore reasonably ask why this test is being applied to the crowd, and how indeed this crowd differs from the one making online share transactions every day?

Having said that, I'd be all for the retro fitting of this test to anyone investing in the stock market. It may prevent the odd crash or two... (imagine it applied to the banks)

My only concern with singling Crowd Funding out in this way is that it leaves it in the 'hobby money' field - a place where people dabble for a bit of fun - which doesn't feel quite a match with backing your beliefs and all the attendant generation of new kinds of businesses which mean more to more of us, that my chapter on Open Capital describes.

That said, the FCA is not closing the door to those who really want to push the boat out. If you want to invest more than the 10% of the assets you have available you can - you just have to prove you are doing so having conducted due diligence and been given professional advice.

The rate of change is so rapid it's difficult for one person to keep up to speed. Let's pool our thoughts, share our reactions and, who knows, even reach some shared conclusions worth arriving at?