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Your chance to shape the rules: the FCA’s new call on regulatory barriers to social investments
Yesterday, the Financial Conduct Authority (FCA) announced its call for input on regulatory barriers to social investments. This is timely and welcome.
Existing financial regulation was set up many years ago, well before the concept of social investment became more widely known. As a result, it fails to recognise that not every investor is the same – we don’t all invest purely by considering financial risks and returns. We consider how exciting and interesting the investment is, and how it matches our own values. This call will allow space for proper consideration of how regulation can take account of the broader reasons for investment by investors.
But it also allows us to consider that charities and social enterprises also may not be ambivalent about where their investment comes from as well. Much of the social investment currently on offer is from funds, many financed by Big Society Capital, or mainstream financial institutions. There are good reasons why many charities and social enterprises would prefer to raise finance from the public. They may already be purchasers of products, they may be based in the local community, and potentially may be able to offer more favourable terms. However, this route is often closed off. More options may be needed and can be developed from this call.
The call for input lays out the framework of the regulation currently affecting social investment. Helpfully, it describes the regulation from the perspective of the charity or social enterprise and the investor – the fact that it has to do this over six separate powerpoint presentations demonstrates how complex this area really is, and why this call is needed. The key points of the call are:
Who should respond? Many groups - charities and social enterprises, particularly those that have used or are considering investment, should respond. Fund managers or advisers, as well as bodies representing potential individual social investors should also respond.
When by? 14th March 2016, so you’ve got a little bit of time.
What should you describe? Any problems with registering as a charity or social enterprise or with raising/investing capital that regulation has an impact on.
How to input? Through the FCA online form
We are particularly interested in how regulation can be modernised to empower enterprises and investors to partner better, more often. In Autumn, we sought feedback from the community about social enterprises raising social investment from retail investors, and we continue to believe that this can be a genuine and important opportunity. As billions of pounds of direct investment flow from interested individuals to SMEs through peer-to-peer and crowdfunding, according to NESTA, charities and social enterprises are missing out. At the same time we know people are increasingly interested in using their money to connect to causes they believe in. More chances for charities and social enterprises to reach out to their communities for support and investment are needed and regulatory barriers need to be addressed.
However, to get this right, evidence is vital. It is critical that charities and social enterprises share their own views as to how they would like to raise capital and who from (Question 2 in the Call). It is also critical that investor groups demonstrate their own interest in investing directly into charities and social enterprises, and in what circumstances, within reasonable standards of consumer protection (Question 6 in the Call). Importantly, this is the chance to think about what could be, not just what is happening now.
We encourage all interested parties to share their view in the Call and generate a robust discussion about how regulation can better support social enterprises, investors and enable the public to participate appropriately in social investment.
Simon Rowell, Strategy & Market Development Director, Big Society Capital