Tim Wright

Regulating CrowdfundingKey Considerations

Deep Impact - India 21st March 2015

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.

Is Regulation a Good Thing?

Unique Value of Crowdfunding

• New money

• More diverse

• Novel expectations of return

• Closer to market

• Lower cost

• Quick money

• Slow money

• Often locally focused

Why Regulate?

Mitigate risk

Build confidence

Grow the market

Crowdfunding Risk Mitigation

• Atomisation

• Transparency

• Crowd scrutiny

To Grow Crowdfunding Requires

•Low transaction costs

•Low barriers to participation

Four Models of Crowdfunding

GIFT

PERK

LOAN

EQUITY

Who can participate

How to Regulate?

How they behave

What they are told

How to Respond?

Two approaches

• “Common Law”

• “Napoleonic Code”

The Common Law Approach

• Outsourcing regulated activities

• Becoming regulated bodies

• Changing the nature of the investment

vehicle

• Operating below thresholds

• Gating access

Satisfy a Mix of Regulation

The Associated Press

British Library

Photo: Ian Sewell, Wikipedia

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%

Rewriting Law

Introducing Law

Awaiting Tier 3

Need to extend law

• 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

http://www.altfi.com/data/analysis/747

Currently £2,500

Average Investment Size

Individual offers have averaged £8,500

January 2014

£2,687

February 2012

£1,854

“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

Tim Wright

tim@twintangibles.co.uk

07717 814 595

@twintangibles

Questions?