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Response to Consultation on Crowdfunding Regulation in UK
Its worth highlighting to significant unintended consequences if the crowd funding regulations go ahead in its current form:
1. The proposed regulations require institutional investors who invest in the normal cause of business in loan based investments, will be required to comply with the same rules that crowd funding platforms need to abide by. This will dissuade them from the market. Institutional investors, such as insurers and pension funds could inject huge amounts of liquidity in the peer-to-peer lending sector, making much needed loan funding available to entrepreneurs and SMEs.
2. For equity based crowd funding the FCA is restricting such investments to sophisticated and high net worth investors. For ordinary "unsophisticated" investors, they will be restricted to only investing 10% of their portfolio. Platforms will also be burdened with an appropriateness test which will require them to assess the knowledge and skill of the unsophisticated investor in invest in equity based crowd funding before allowing them to invest.
This will take the crowd out of crowd funding.
This topic was hotly debated in Parliament on 18th of December 2013, and Members of Parliament agreed that this industry has huge potential and should not be restricted by regulation.
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