How different are the markets for crowdfunding—an emergent online platform for raising small sums from multiple investors—in the U.S. and the U.K? “While Title III of the JOBS Act would establish an SEC exemption for crowdfunding, the SEC has yet to propose or adopt implementing rules,” says Washington, D.C.-based Morrison & Foerster partner David Lynn. “Absent registration with the SEC, equity crowdfunding online is likely illegal, absent the availability of an existing exemption.”
“There is an expectation that raising capital online will prove less costly and may provide more funding sources than traditional methods,” adds Morrison & Foerster partner Lawrence Bard. “Yet burdensome reporting requirements may prove complicated and costly, making crowdfunding’s viability largely dependent on the amount charged by intermediaries.”
In a statement last August, the U.K.’s Financial Conduct Authority outlined the benefits and risks of crowdfunding and suggested ways in which investors can protect themselves. “Pro-crowdfunding bloggers interpreted the statement as a warning,” says London-based Morrison & Foerster partner Chris Coulter. “Striking nerves especially was the FCA’s stated concern over the exposure of unsophisticated investors to unregulated operators.”
Because detailed diligence with crowdfunding is unrealistic, investors may be better off working with FCA-approved entities, which must provide more disclosure on investment offerings, says Morrison & Foerster partner Justin Stock, also in London.