As we wait for the 23rd June and the UK’s vote on whether to stay inside the European Union, we look at the impact a move outside the Union would have on the Equity Crowdfunding industry in the UK.
One of the key features of the ECF sector in the UK since its inception in 2011 has been its ability to be pan-European.
Two of the three main UK platforms have operations in other European countries and theoretically all UK platforms are able to take investment from any resident of an EU member state. So, for example, Crowdcube operates in Spain and Sweden. In fact, Crowdcube now call themselves Europe’s number one equity crowdfunding site - instead of the UK’s. Likewise, Seedrs operates out of Portugal as well as the UK. Syndicate Room is yet to set up shop overseas.
What is more critical is the ability for the platforms to promote their pitches within Europe and easily accept investment from these countries. ECF only really works if the access to pitches is easy and the investment is instantaneous.
Conflicting regulations, or even perceptions of conflict, remove this ease of access and in turn this makes ECF much more difficult.
For example, the recent developments in the USA - where the final part of the Jobs Act, Title III, was supposed to allow ordinary US citizens to invest in UK platforms - has in fact achieved little. SEC rules on the promotion of investment opportunities are very different to those in place here. Fear of crossing an almost invisible line has meant no UK platform is willing to take investment from the States – Title III or no Title III. Similar but less stringent restrictions are evident for any country outside the EU – different regulations mean different approaches are required and the simple action of pressing ’invest’ no longer works.
So if the UK leaves the EU, will this also mean a change in the way the EU handles these promotions and rules on who can invest and how much? Probably.
Will this impact the UK platforms? Almost certainly. At the moment, they have a potential investor pool of 500m people. If it were the case that EU regulations differed from those set by the FCA, then this market would be materially altered. The UK would no longer have a voice in what changes the EU made – QED the UK would lose out.
It’s impossible to say just how the changes would impact the platforms in reality – only politicians claim to have crystal balls. But we can be sure that there would be an impact and from this side it seems as though it would not be a helpful one.