Are US crowdfunding regulations in line with other Global players? And which markets are leading crowdfunding and what can be learned from them? Two very important questions to consider when understanding how crowdfunding is evolving globally. Here are our thoughts:
US regs are NOT in line with other global players. The new UK rules were seen as favorable by Crowdcube and we continue to believe that the UK is a great example of the success of a moderate regulatory regime that leverages the value of the transparency that is created by crowdfinance (both debt and equity). Regulators get transparency and better data monitoring than was ever possible before in the private markets and lenders/investors also benefit from both the transparency and real time engagement with their investments. Australia has also issued some new draft rules that make CF easier there as well: http://paulniederer.com/2014/05/equity-crowdfunding-and-australia/
The EU’s statement a few months ago was split between wanting to regulate, but also understanding that overregulation could kill the industry. As of May 1, 2014 Italy’s highly, highly restricted form of CF has only been successfully completed by 1 company in the 9 months it has been available.
The short version is that where CF has been given a fair shot by regulators, it has generally worked with extremely low levels of fraud and/or default. The US rules (if issued as the draft rules are written) will significantly reduce the utilization of this powerful new tool in business finance. This will enable other countries to continue to move ahead in strengthening their entrepreneurial ecosystems.
Lessons Learned? Strong communication and collaboration between the industry and the securities/banking regulator creates an industry that best serves the needs of both investor protection and capital formation. A regulator that enables CF to function with prudent monitoring enables the regulator to modify regulation when needed, based on actual experience, not based on fears that are not based in fact.
We have created the CCA Balanced Regulatory Framework(TM) that enables the 5 constituencies that must be satisfied/included in a workable solution, to work through those issues together and form a regulated industry that creates prudent investor protection and enables streamlined capital formation. To do this you must balance the needs of:
- Protection for Investors
- Capital for Companies
- Transparency for Regulators
- “Oxygen” for the Industry (enough regulatory room to compete, grow a profitable industry)
- Engagement opportunities for the entrepreneurial ecosystem (NGO’s multi-laterals, development organizations) – this is more vital in developing economies but also plays a role in developed economies.