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Monday, 20 October 2014

Developing EU Policy On #Crowdfunding

I've finally had a chance to catch up with the minutes of the initial meeting of the EC's "European Crowdfunding Stakeholders Forum" (ECSF) in late September. Clearly these are still early days and the Commission is rightly (and rather atypically!) waiting to see how the various types of crowdfunding develop at national level, rather than rushing to regulate.

Unfortunately, it seems there was no time to take account of the UK regulations on P2P lending and crowd-investment, which took effect on 1 April 2014. These are cited in either the European Banking Authority's submission to last December's EU crowdfunding consultation, or the AK Wien high level review of various platforms.

That's a pity, since the UK regulation addresses all the various issues raised in those reports relation to peer-to-peer lending and crowd-investment.

It's interesting that the AK Wien report calls for rewards/donation-based crowdfunding to be regulated like in similar fashion, the UK declined to include that activity - and even the US has excluded donation-based funding from the otherwise all-embracing US securities framework. Perhaps AK's concern is that Europeans won't even start rewards/donation platforms without explicit permission to do so. That would be consistent with the civil law expectation that governments should specify which activities are lawful, rather than the common law view that the law should follow commerce where necessary to resolve issues that arise. But, unfortunately, that's no way to foster the growth of a nascent industry, as the Commission has recognised in its subtle approach to this area so far.

It's encouraging, however, that both the Commission and the ECSF seem to be taking a holistic approach to crowdfunding generally. That also reflects the Commission's approach to regulating payment services, on which the UK industries' self regulatory approach to crowdfunding has been based. At least that may produce a more unified set of rules, rather than the FCA's multiple rule books governing the same operational risks at the platform level. Perhaps a more unified approach will emerge from the FCA's review of the effectiveness of its rules in 2016.

In the meantime, the ECSF should also consider whether there are any tax incentives for personal investors that may be impacting the growth of alternative financial services. Again, the UK policy work in this area should be instructive, as discussed in the Treasury's consultation on proposals for including P2P loans in Individual Savings Account 'wrappers'.