Crowdsurfer was asked to comment as part of the Financial Conduct Authority’s post-implementation review of the UK’s current crowd finance rules, as published in July 2016.
Of the questions posed in the FCA's study we responded to those specifically related to reporting and disclosure of information, reflecting our role as providers of data intelligence on all parts of the crowd finance industry. In this blog, we publish an overview of this response.
We believe the UK continues to be the world leader in embracing new financial technology innovation. The growth of crowd finance is testament to this and the benefits we are seeing include more choice for fundraisers and investors, as well as the creation of new jobs, both directly and indirectly.
To support its continued growth, we feel there is a need to continue building trust and understanding of the market. Data availability and transparency is fundamental to achieving this. Specific areas that we consider need improvement are:
- Appropriate industry guidance on levels of transparency
- Consistent, timely reporting on loans and their subsequent performance
- Disclosure of investor types, retail or institutional, taking part in specific raises
- Standard monitoring and reporting of investment performance post raise
With appropriate support and regulation, we expect the crowd finance sector to go from strength to strength.
Our detailed responses to specific PIR questions
Q2: Do you have any concerns about, or evidence of, differences in the treatment between retail and institutional investors?
- Reporting participation by retail or institutional investors during and post raise is often indistinguishable. It is difficult to discern between a campaign that is attracting institutional involvement, and that which is mostly from retail investors.
- Greater disclosure of the type/s of investor, while maintaining appropriate levels of privacy, for each raise would aid the understanding for potential investors and make it easier to identify any differences in treatment, or subsequent performance.
Q5: Do you agree with our analysis of the key developments in the loan-based crowdfunding sector over the last two years?
- We agree that there has been market diversification and increasing interest in online platforms from institutions with a view to participating, emulating or tracking activity.
- This pattern of market development holds true for both the UK and non-UK markets.
- We will continue to see diversification as more areas of financing are disrupted by the efficiencies and scale offered by online platforms.
- Regulation should take this trend towards diversification into account as far as foreseeable.
Q8: Do you have any comments on the standards of disclosure on loan-based crowdfunding platforms?
- Up to date information on loan performance and provision funds is not always easily available and may be available only sporadically or months after the event
- Accessible, detailed, up to date information on loans offered and served, and their subsequent performance, is critical to increasing trust in the industry
- Inconsistency in reporting of interest rates makes it more difficult to understand and compare deals. Improved, comparable information on the available provision fund could also benefit investors.
Q13: Where do you think regulations could be amended to increase confidence in loan-based crowdfunding markets, encourage the development of the markets in the interest of consumers or increase competition by removing uneven playing fields?
- Current data rules from PS14/4 focus on overall platform performance rather than individual loan-level data
- We believe that investors and potential investors would benefit from the publication of standardised detailed data on individual loans (and campaigns in the case of equity).
- Data transparency would also support healthy competition between platforms, by enabling differentiating factors to be better analysed.
Q16: What other market developments should we take into account in our review of the investment-based crowdfunding sector?
- New investment platforms launched by existing financial services firms are becoming more common (e.g. Downing Crowd, Octopus Choices)
- The traditional financial services sector is creating new platforms for their businesses, as a reaction to the disruption of technology.
- Secondary markets, offering investor liquidity, are in their infancy, and more are being developed.
Q18: Do you have any comments on current due diligence standards for investment-based crowdfunding platforms?
- Crowdsurfer believes that the standard of due diligence set is a decision for the platform in response to the market it serves, however, the disclosure of those standards, processes and deal selection is under-reported.
- It’s currently difficult to identify and compare due diligence methods and standards between platforms in order to make an informed view on the relative practices.
- We support appropriate industry guidance on information transparency to assist potential investors and fundraisers, and an exploration of codification of due diligence practices.
Q20: What do you think of the current standards of information disclosure on investment-based crowdfunding platforms?
- We would welcome disclosure of the amount of money ‘cornerstone’ in an investment, or agreed prior to the campaign launch but processed by the platform.
- There is a lack of standard monitoring and reporting of investment performance post raise, which is a more difficult challenge to solve, but is important.
- Information offered during and after a campaign varies between platforms. For example, the amount raised during the campaign may differ from the amount received by the company at completion, but by how much is unclear to the investor.