Ever since the appearance of the electronic era and the Internet, new words have arrived with increasing frequency. In the last couple of years, one that has entered the vocabulary is ‘crowdfunding’.
According to Wikipedia: “Crowdfunding is the collection of finance to sustain an initiative from a large pool of backers – the ‘crowd’ – usually made online by means of a web platform.”
In the UK, the Financial Conduct Authority (FCA) states that: “Crowdfunding is a way in which people, organisations and businesses (including business start-ups) can raise money through online portals (crowdfunding platforms) to finance or re-finance their activities and enterprises.”
Some crowdfunding is unregulated, but if it involves a regulated activity (such as property), without an exemption applying, then the FCA is responsible for its regulation.
Profits and benefits
David Blair is head of Financial Regulation at international lawyers, Osborne Clarke. One area of his expertise is in the field of crowdfunding and in a recent interview he explained that initially it was a donation and rewards system where the investments were mainly in local or artistic projects. (http://www.
“It was only relatively recently that investors were able to share in the financial profits and benefits of a project. My interest as an investment lawyer had been in the investment side of things. Crowd investing allows both investors and investees to gain access to other markets. Previously, small enterprises requiring funding would have needed to turn to personal sources such as friends and family. Crowdfunding has changed all that.
“The FCA is there to regulate the conduct of firms that are bringing propositions to investors – where investors stand to lose money. The FCA has a role in protecting investor interests. One of the ways that this can happen is the selling of an investment in the first instance. If, for example, there is misrepresentation to investors or secondly, once having made an investment, the funds are not used as they should have been.
“The new rules specifically relating to the promotion and restrictions on who can actually participate in crowdfunding come into force on 1 October 2014. However, many firms, including Property Crowd are going to implement the rules in advance of that.”
Safety for the investor
In the UK, www.propertycrowd.com is the first real estate crowdfunder operating under FCA regulations. Going down this route ensures safety for the investors.
Certainly when the new activity is applied to property, then it is essential for the FCA to oversee companies that are aiming to acquire properties via a large group of individuals. It would be a problem if the situation were allowed to spiral out of control with hundreds of crowdfunding groups springing up all over the country.
So large and so fast is this new form of business growing that the Guardian newspaper stated recently that: “Speculation is that crowdfunding will have raised $5bn or more this year alone (up 50% from last year), making 2013 the year that crowdfunding became mainstream.”
As in all schemes, the sensible investor who chooses to become involved in crowdfunding is the one who uses caution, invests with knowledge in companies that are recognised by controlling bodies (in the UK the FCA) and who aims at the long term.
“Investing in real estate comes down to specifics,” stated David Blair. “There’ll always be good and bad investments and that applies to crowdfunding as it does to anything else. For the first time, crowdfunding allows investors to really diversify their interests in real estate because it permits them to make very small investments through a specific website.”
Property Crowd Limited is an Appointed Representative of Gallium Fund Solutions Limited (Gallium), which is authorised and regulated by the Financial Conduct Authority.
This means that all of Property Crowd’s investment materials are carefully vetted by an FCA regulated firm in order to ensure that they are clear, fair, and not misleading in any way.
It also gives investors access to the FSCS (Financial Services Compensation Scheme), ensures good corporate governance of the company’s crowdfunded property asset holding companies given that there is a director from the Gallium group of companies on the board, and finally, that investors have ultimate recourse to the Financial Ombudsman Service given Property Crowd’s Appointed Representative status.
For more information, contact: www.propertycrowd.com