News Briefing - Crowdfunding, SME And Alternative Finance

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The essentials are here and will be regularly updated. If you want to be well-informed about the investment crowdfunding scene, and you're short of time, this is the place to visit.

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1. UK – AltFi

 

The advent of hand-held devices such as Smartphones and tablet devices has caused the financial technology industry to explode in recent years, with the ability to create all sorts of applications to drive the delivery of financial products, services, and processes with fast turnaround times, according to equities.com.

“Fintech is responsible for some of the ways people interact with companies and financial institutions that we generally take for granted. For instance, it is now easier to pay for goods and services, at a reduced cost. Financial inclusion has also increased, with people being able to use P2P lending platforms to access financial services and credit. 

Presently, the fintech industry is now considered a global multi-billion dollar industry, with the space being dominated by companies that offer financial products, payment services, uncollateralized credit and financial software for banking and the capital markets. The number of companies providing fintech products and services has expanded over the years, with more investments pouring into this space. So the question is: why are so many startups flocking into fintech? Is there going to be a point at which the industry will become saturated?”

 

Why are so many startups into fintech? Will it soon become saturated?

 

2. UK – AltFi

 

Lawyer Monthly reports:

 

A recent survey by MHA, the national association of independent accountancy firms we are a member of, revealed that total external funding per equity partner in small and mid-sized practices decreased significantly in 2017, ranging from £42,000 in the smallest firms to £228,000 in the largest, compared with £156,000 to £506,000 last year. While reducing external finance may seem to be a positive move, it is more likely to have been driven in part by bankers putting pressure on firms to reduce overall lending. Kate Arnott, Head of Professional Services at MHA MacIntyre Hudson, explains for Lawyer Monthly.

Of the firms surveyed, bank borrowings fell significantly in all firms except sole practitioners, who tend to fully guarantee borrowing in their own names. Bank borrowings per equity partner ranged from £19,000 to £112,000 (in the largest practices) in 2017, compared to £21,000 to £228,000 the year before. 

 

 

3. UK – AltFi

 

Crowdfundinsider reports:

“This past week, HMRC released numbers on the relatively new Innovative Finance ISA(IFISA) that enables savers to invest in debt based crowdfunding offerings. The UK government indicated that IFISA participation had topped £290 million during the 2017/18 tax year, or 8 times more than the 2016 / 17 figure of £36 million.

The UK Crowdfunding Association (UKFCA) issued a statement on the IFISA report stating;

“The rapidly expanding take up of the IFISA by the public is great news for both investors and the UK economy. Investors choosing IFISA can diversify their investments across a range of different businesses and projects. Their money goes to work creating jobs and sustainable growth. The UKCFA represents a range of platforms investing in both bonds or loans from high to low risk, inflation beating returns and short to long term investments.  All platforms have seen strong growth this year reflected in a big proportion of the more than £290 million invested in IFISA last tax year.” 

Bruce Davis, the Director of the UKCFA and co-founder / Joint MD of Abundance investment, shared some additional insight into the IFISA progress. Davis told CI that the IFISA was having no discernible impact on equity crowdfunding platforms (which may also offer debt based securities).

“Equity investing and debt / loans are very different investments in terms of financial need and investor profile,” said Davis – noting that equity crowdfunding is not eligible for inclusion in an IFISA – but it already has generous tax incentives through EIS etc. “

Asked if the forthcoming regulatory changes in loan based crowdfunding will impact the IFISA, Davis said they don’t expect any impact at all.

“… we welcome the introduction of effective methods for platforms to ensure people understand the risks and can access all the relevant information about their investment in a straightforward and transparent way,” Davis added.

Davis believes that better messaging will help educate the population on the benefits of the IFISA;

“The main platforms are talking about the benefits of their investments in terms of returns and positive impact on the real economy versus other forms of investing,” Davis stated.”

 

This past week, HMRC released numbers on the relatively new Innovative Finance ISA (IFISA) that enables savers to invest in debt based crowdfunding offerings. The UK government indicated that IFISA participation had topped £290 million during the 2017/18 tax year, or 8 times more than

 

4. UK – AltFi

 

Crowdfundinsider reports:

 

“As in most parts of the world, smaller businesses drive the bulk of job growth in the UK. Over 99% of all UK businesses are SMEs employing 0-249 people and 96% (approximately 5.5 million) are micro-businesses employing up to 9 people, accounting for 33% of private sector employment and 22% of turnover. Thus, it is profoundly important that these same small businesses have access to capital to grow and expand.

Simultaneously, these businesses tend to be riskier credit propositions and established banks are frequently not interested in providing riskier loans. A plan in the UK requires that banks who reject SMEs must be directed to alternative finance providers – typically online lenders.  As reported by HM Treasury this past week, to date the Bank Referral Scheme has helped to source over £15 million in funding to British SMEs.

According to Treasury, during the past 12 months, 670 businesses have raised over £12 million of funding through the Scheme, four times what was raised in the previous year. Loans resulting from the program have ranged from just £100 to £1.3 million. The average size of a loan secured was £17,285.”

 

As in most parts of the world, smaller businesses drive the bulk of job growth in the UK. Over 99% of all UK businesses are SMEs employing 0-249 people and 96% (approximately 5.5 million) are micro-businesses employing up to 9 people, accounting for 33% of


5. International – FinTech

 

Speaking at the very first OECD Blockchain Policy Forum taking place in Paris this week, OECD Secretary General Angel Gurria opened the conference calling blockchain (or distributed ledger technology) an “unprecedented technological revolution.”

The Forum saw the participation of multiple public officials including the Premier of Bermuda – E. David Burt, the Prime Minister of Mauritius –  Pravind Kumar Jugnauth, the Prime Minister of Serbia – Ana Brnabić and more.

 

Speaking at the very first OECD Blockchain Policy Forum taking place in Paris this week, OECD Secretary General Angel Gurria opened the conference calling blockchain (or distributed ledger technology) an 'unprecedented technological revolution.' The Forum saw the participation of multiple public officials including the Premier

 

6. International – FinTech

 

Lexology reports:

 

Members of the European Parliament (MEPs) held a meeting on Tuesday to discuss potential new regulations on initial coin offerings (ICOs).

What does this mean?

The All-Party Innovation Group of the EU Parliament was examining potential new rules that would bring ICOs within the scope of an EU-wide crowdfunding regulation that is currently being drafted.

If approved by the Parliament, the rules would create common regulation and standards for token sales, allowing projects to raise funds and trade in the EU.

The proposal to bring ICOs within the crowdfunding regulation was first introduced by UK MEP Ashley Fox.

Among other things, Fox called for a cap of €8 million on token sale proceeds, anti-money laundering and know-your-customer requirements, as well as recommending that state authorities oversee the new system together with their own national rules.

He also recommended that "project owners" behind ICOs should provide a "key investment information sheet" to potential investors, containing a wide range of disclosures, from details of the identity, legal status and contact details of the project owner to detailed information on the platform, controls for risks management, how much money is being raised and what happens if the target is not reached.

The information provided to potential investors would have to be fair, clear and not misleading and project owners would be responsible for keeping it up to date and correct.

"Be assured, that as legislators we're trying to make ICOs more possible and more successful; that certainly is our objective," Fox said during the meeting.

Hogan Lovells Technology Partner John Salmon, who is helping draft the crowdfunding regulation and leads the firm's global blockchain group, said at the meeting that the proposal is a step in the right direction and should be helpful for the market as it offers certainty and legitimisation, even though it might not work for all ICOs.

Salmon added:

"Having the certainty, but also having that legitimisation, I very much welcome having a European-wide proposal. I think it would be incredibly helpful to see that: it gives people the certainty to know… but we need to be clear whether this is a utility token or a transferable security, or how the regulatory regime comes within that. But I think it makes perfect sense because an ICO is another form of crowdfunding. It is different, but it is a form of crowdfunding."

At the meeting, calls were also made for stricter scrutiny of ICOs, given the high proportion of fraud perpetrated using the blockchain funding model.

What happens now?

MEPs have until 11 September to submit amendments to the proposal, which would trigger further debate.”

 

What has happened? Members of the European Parliament (MEPs) held a meeting on Tuesday to discuss potential new regulations on initial coin offerings…