In a year of startling headlines and political change, it’s important to keep track of the most essential updates of all, those from the crowdfunding sphere. Countries with less developed legislation look to those with a flourishing crowdfunding sector as a framework, with the burgeoning sector demanding that regulation reflects the modern, engaged equity crowdfunding industry. Today we assess the pace of global crowdfunding legislation, and how it impacts the performance of different platforms.
Despite the constantly shifting and febrile political landscape, the US has seen sizeable adjustments in the domain of crowdfunding in 2016. The SEC had hitherto hampered the opening up of investment to new investors, restricting legislation that would expand access and involvement beyond accredited investors. As the JOBS Act was finally enacted in May, equity crowdfunding is set to have as significant an impact as rewards-based crowdfunding already has in the US. Capitol Hill has likewise looked to extend the legislation beyond its current parameters, as the Vice Chairman of the House Financial Services Committee addressed bill to expand the $1m cap to $5 million. No registration statement is required for those entrepreneurs conducting an equity offering of up to $1 million in 12 month period, representing a less demanding than that of security issuers. Investors and entrepreneurs must use SEC-approved crowdfunding portals, but as more meet these requirements, the choice and diversity of the industry will increase, benefiting consumers and the industry alike.
2015 noted equity crowdfunding as the most active investor type in high growth company funding in the UK, thanks to the ever-comprehensive Beauhurst report. As such, the UK has sought to legislate this industry further to tap into its enormous potential. At present the Fintech market in Europe is worth £4.9 billion, with deal numbers in equity crowdfunding in the UK up by 45% from from 2014 to 2015. While there is no umbrella legislation to the sector at present (and with Brexit none that will apply to the UK in future), member states favour national regulation, which allows for diverse approaches. In the UK, the Financial Conducts Authority assesses P2P platforms of all varieties and incorporates their feedback to foster a first-rate regulatory environment for debt and investment based crowdfunding platforms.
Australia’s stance on equity crowdfunding legislation has been an evolving and shifting one, unfortunately at times failing to match the liberal adjustments of its antipodean counterpart, New Zealand. The country’s leading investment platform, Equitise, has called for a more liberal, regulated marker. The Corporations and Market Advisory Committee released a report on the crowd-sourced equity funding market, as it is referred to by the government, which pushed for legislators to look to global examples of legislation for influence, highlighting the UK, US and NZ models. Now, companies are able to fund up to $5 million through crowdfunded equities, but the government needs to heed the examples set internationally to ensure it has competitive regulation.
New Zealand enacted crowdfunding legislation in 2014, before many larger, competitive international economies had taken to regulating the crowdfunding sphere. Since then, over $25 million has been raised, a small figure on the international stage but significant considering the country’s size. While UK and the US discuss extending the investment cap, New Zealand looks to do the same, as it still stands at $2 million currently. Those more ambitious companies have pushed for even broader regulation, in the interests of entrepreneurs and investors alike.
Alternative finance expands with both consumer pushes and government legislation, the two work symbiotically to achieve a more competitive and robust marketplace. This post demonstrates the leaps made since crowdfunding’s inception, as well as the insider appeals for legislation to expand further in order for the industry to challenge traditional financial services more significantly. Assessing investor caps must be done in conjunction with the consideration of consumer protection, so the crowdfunding industry can continue to thrive and benefit its array of diverse investors, entrepreneurs and established businesses.
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Richard Andrée Wiltens is a commentator within the fintech sector, who has written for an array of international investment platforms. His career has spanned from investment banking to financial technology firms, backed by an education in economics and finance.