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Tim Wright
Regulating CrowdfundingKey Considerations
Deep Impact - India 21st March 2015
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Proposition
• Crowdfunding is new and better finance.
• Bad regulation will damage it, constrain it,
and reduce its inherent benefits.
• Regulation of crowdfunding requires new
thinking.
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Is Regulation a Good Thing?
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Unique Value of Crowdfunding
• New money
• More diverse
• Novel expectations of return
• Closer to market
• Lower cost
• Quick money
• Slow money
• Often locally focused
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Why Regulate?
Mitigate risk
Build confidence
Grow the market
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Crowdfunding Risk Mitigation
• Atomisation
• Transparency
• Crowd scrutiny
To Grow Crowdfunding Requires
•Low transaction costs
•Low barriers to participation
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Four Models of Crowdfunding
GIFT
PERK
LOAN
EQUITY
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Who can participate
How to Regulate?
How they behave
What they are told
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How to Respond?
Two approaches
• “Common Law”
• “Napoleonic Code”
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The Common Law Approach
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• Outsourcing regulated activities
• Becoming regulated bodies
• Changing the nature of the investment
vehicle
• Operating below thresholds
• Gating access
Satisfy a Mix of Regulation
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The Associated Press
British Library
Photo: Ian Sewell, Wikipedia
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Common misconception that UK equity
crowdfunding was unregulated prior to April 2014
UK equity crowdfunding exists in spite of regulator not because of it
10%
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Rewriting Law
Introducing Law
Awaiting Tier 3
Need to extend law
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• Increases risk– Reducing transparency
– Reducing participation
– Reducing diligence
– Drive up investment size
• Reduces the value of crowdfunding– Reduce engagement
– Reduce participation
– Reduce diversity
– Increase cost
– Distort novel expectation (the usual suspects)
Crowdfunding Being Treated Like Old Finance
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http://www.altfi.com/data/analysis/747
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Currently £2,500
Average Investment Size
Individual offers have averaged £8,500
January 2014
£2,687
February 2012
£1,854
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“They will not understand the
philosophy or the procedures of this (Grameen) bank,”
Muhammad Yunus
“You cannot create the bank of the poor with the same architecture as the
bank of the rich.”
On bank regulators also regulating
microcredit institutions