UK regulators are taking a heavy-handed and seemingly inappropriate response to the promotion of crowdfunding pitches — they’re preventing them, citing the Financial Services and Markets Act (FSMA) when they do.

Talking about equity pitches? You’re nicked!

What’s happening, according to RealBusiness, is that the Financial Conduct Authority (FCA) has decided that allowing websites and social media channels to discuss crowdfunding pitches for equity offerings constitutes financial promotion under Section 21 of the FSMA. This means anyone doing so faces up to two years in jail “unless they are regulated by the FCA”.

This isn’t an idle threat — the FCA has recently been sending letters threatening action against crowdfunders who commit such actions as:

  • Mentioning a pitch on the Web
  • Mentioning a pitch on Facebook
  • Mentioning a pitch on Twitter
  • Or even retweeting someone else’s Tweet.

Chilling effect

The rationale behind this ridiculous legislation was to prevent unregulated promotion of financial products to the public, but this reading of the law is likely to cast a chilling shadow across equity crowdfunding sites, and sites reporting on available projects for investment.

That’s incredibly bad for business users attempting to exploit crowdfunding to get their ideas off the ground. It is particularly bad given the essential part social media and websites play when sourcing funding.

The only people likely to benefit will be the big banks and well-heeled investors, who get to maintain their historic grip on business funding. This grip enables them to cherry-pick the most profitable ideas while sending other valuable business propositions to the wall.

In an environment in which banks and investors are pulling the plug on new business funding, this could threaten future economic recovery by limiting the available money supply for new business.

TheCrowdfundingCentre.com has already received this warning from the FCA, RealBusiness reports. That site cannot now display complete listings of equity and loan offerings it carries, “Due to current FCA rules”.

Take action

There is a little hope. Chris Moss of Channel 4’s Bank of Dave has written some easy amendments to the FSMA that would update the law so the Web and social media would be treated in the same way as any other form of media. That’s because conventional media channels are not threatened under this rule.

RealBusiness urges action:

“Please don’t delay, write to your MP enclosing this article and the link to Chris Moss’ FSMA solution. Write also to the Prime Minister and Andrea Leadsom, Economic Secretary to the Treasury.”

We’re writing right now.