Over-regulation by the FCA risks squeezing money and hurting small businesses
The Financial Conduct Authority (FCA) has come under fire for its strict regulation of the crowdfunding industry, which critics say is stifling investment and cutting off vital funding opportunities for small and medium-sized enterprises (SMEs).
The UK Crowdfunding Association (UKCFA) has warned that these rules could cost the economy billions of pounds in lost investment.
In a letter to Tulip Siddiq, the City minister, the UKCFA said the FCA’s changes were discouraging investors by making the regulatory framework too restrictive. The group, which represents more than 20 fundraising platforms, has called for an independent review of small business finance to tackle the issue.
Bruce Davis, chairman of the UKCFA, highlighted the UK’s position as one of the most regulated crowdfunding markets in the world. He warned that this excessive legislation deters investors and drives certain companies to seek financing in European regions with less restrictive regimes.
The FCA’s changes include measures such as risk warnings, a ban on investment “rolls”, stricter due diligence, and “conflicts” designed to prevent rash investment decisions. However, these changes reportedly increased marketing costs, reduced the platforms’ ability to attract new investors, and made fundraising unprofitable for some platforms.
The organization criticized the regulator for failing to balance consumer protection with the need for a healthy investment ecosystem. It also pointed to the rise of unauthorized and unregulated investment offerings, which it said posed a significant risk to investors.
The group estimates that over-regulation is reducing up to £16 billion in potential funding for SMEs, exacerbating financial barriers for small businesses at a time when access to finance is critical.
A Treasury spokesman defended the government’s commitment to balancing investor access and consumer protection, while an FCA spokesman said they were working to promote investor confidence and open discussions about risk-taking.
Despite these assurances, the UKCFA stresses that balanced regulation is essential to maintain the UK’s position as a global leader in capital markets while supporting sustainable economic growth through crowdfunding.
