Brexit, financial services and rethinking transport strategy at the Labour party conference fringe 2019

Robert Pettigrew shares his observations on a series of fringe meetings and policy roundtable discussions from the Labour party conference in Brighton.

It was never likely that Brexit would not feature prominently within the conference hall and on fringe at the Labour party’s annual conference in Brighton this week. Yet an early morning fringe meeting — ostensibly a gathering organised by the Society of Labour Lawyers with a nominated theme of Brexit and financial services — was packed out some time before the discussion was scheduled to start.

The panel, which comprised the Chair of the House of Commons’ Exiting the EU Select Committee (Hilary Benn), the shadow Economic Secretary to the Treasury (Jonathan Reynolds), a Member of the European Parliament, the Vice-President of the Law Society and one of the party’s economic policy advisers, discussed the state of the Brexit process and the importance of satisfactory arrangements for this part of the economy after the UK’s departure from the EU.

We were told that UK financial services are the third most reliant sector on the European Union — and panellists considered that it was a clear failure of Theresa May’s Withdrawal Agreement that no provisions were included. The risk posed by Brexit to UK financial services were similar to those of a ‘slow puncture’ (rather than the much-fabled cliff-edge); no-deal would be likely to deprive us of good will, we were told. Flaws in some of the statutory instruments which have been passed to deal with Brexit were described.

 At a lunchtime roundtable, chaired by Professor David Begg and addressed by the shadow Transport Secretary, Andy McDonald MP, the policy priorities for rethinking rail delivery was discussed. The Chair reflected on debates from twenty years ago — when I was working at the Strategic Rail Authority, on which he served on the Board — and the parallels in the debates which are now taking place.

Speculation about what the conclusions of the ongoing Williams Review as well as  the work being undertaken by Professor Phil Goodwin at the Labour frontbench team’s request, might imply, the roundtable also considered addressing the collapse in public and political confidence in the rail sector; how approaches to major infrastructure projects could be improved; and, more fundamentally, how price signals between different modes of transport should be re-calibrated to achieve expressed policy objectives. Re-framing the arguments (for example, in terms of sustainability) should gain greater traction and improve public confidence.

P2PFA quarterly data reveals record number of lenders and borrowers

The Peer-to-Peer Finance Association (P2PFA) issued the following press notice this morning:

RECORD NUMBER OF LENDERS AND BORROWERS INVOLVED IN PEER-TO-PEER LENDING

At the end of the second quarter of this year, more than 150,000 lenders were invested in 321,483 loans facilitated by Peer-to-Peer Finance Association (P2PFA) platforms – a record level of involvement in the sector.

During the three-month period between April and June 2019, £800 million of new loans were facilitated through P2PFA platforms, as cumulative lending enabled through the Association’s eight platforms broke £11.3 billion.

Commenting on the statistics, Robert Pettigrew, Director of the P2PFA, said: ‘the growing number of investors and borrowers in peer-to-peer lending are attracted by the innovative and competitive offer from P2PFA platforms. By embracing high levels of transparency and demonstrating robust business practice, P2PFA platforms have secured demonstrable investor and borrower confidence as the UK peer-to-peer lending market develops further as an attractive, grown-up marketplace for loans which are open and accessible to a wide spectrum of investors and borrowers’.

ENDS

Notes to Editors

  1. Peer-to-peer lending – regulated by the Financial Conduct Authority since April 2014 – involves direct matching of funds between investors and borrowers through an on-line platform. Investors range from retail consumers to institutional investors as well as the government-owned lenders. Borrowers range from consumers, small businesses, property developers and buy-to-let. Peer-to-peer lending platforms match investors and borrowers directly for a fraction of the cost of traditional financial services entities, providing benefits to customers on both sides of the transaction.
  2. The Peer-to-Peer Finance Association (P2PFA) was established in 2011 as a representative and self-regulatory body for debt-based peer-to-peer lending. The P2PFA seeks to inform and educate, promote high standards of business conduct, and work with policy-makers and regulators to ensure an effective regulatory regime. P2PFA members are required to meet robust standards for the transparent, fair and orderly operation of peer-to-peer lending. The member platforms are: CrowdProperty, Crowdstacker, Folk2Folk, Funding Circle, Landbay, Lending Works, ThinCats and Zopa.
  3. Aggregate levels of peer-to-peer lending by P2PFA platforms between Q2 2018 and Q2 2019:

P2PFA aggregate lending (Q2, 2018 – Q2, 2019)

 Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019
Cumulative lending£8,043,217,143£8,786,291,681£9,595,548,965£10,539,063,808£11,350,279,184
Base stock of loans£3,711,828,191£3,956,885,758£4,267,975,224£4,673,466,536£4,926,859,979
New lending£690,971,072£720,979,029£809,257,285£866,784,209£814,039,956
Capital repaid£435,267,000£457,325,319£454,966,728£476,972,062£514,184,610
Net lending flow£255,202,073£263,036,509£354,293,557£455,082,097£302,360,834

4. Aggregate P2PFA platform lending flows to non-consumers (businesses and property/real estate sectors) between Q2 2018 and Q2 2019 are contained below:

P2PFA non-consumer lending (Q2, 2018 – Q2, 2019)

 Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019
Cumulative lending£4,509,345,016£4,991,382,520£5,519,645,135  
Business lending   £5,708,031,575£6,167,174,170
Property/Real Estate lending   £446,673,199£507,735,977
Base stock of loans£2,290,747,092£2,488,949,319£2,743,083,518  
Business lending   £2,737,245,538£2,859,702,500
Property/Real Estate lending   £338,056,167£392,655,484
New lending£420,499,764£459,941,996£526,777,616  
Business lending   £477,249,348£442,080,975
Property/Real Estate lending   £82,494,292£61,202,358
Capital repaid£225,610,955£243,143,627£243,389,445  
Business lending   £244,170,828£274,338,894
Property/Real Estate lending   £16,202,447£6,463,435
Net lending flow£194,386,810£216,181,168£283,391,171  
Business lending   £299,277,115£170,247,567
Property/Real Estate lending   £66,561,725£54,738,923

5. Aggregate P2PFA platform consumer lending flows between Q2 2018 and Q2 2019 are below:

P2PFA consumer lending (Q2, 2018 – Q2, 2019)

 Q2 2018Q3 2018Q4 2018Q1 2019Q2 2019
Cumulative lending£3,533,871,127£3,794,909,161£4,077,318,465£4,384,359,034£4,696,513,213
Base stock of loans£1,421,081,099£1,467,936,439£1,524,891,706£1,598,164,831£1,663,056,844
New lending£270,471,308£261,037,033£282,479,669£307,040,569£312,154,179
Capital repaid£209,656,045£214,181,692£211,577,283£216,598,787£234,763,647
Net lending flow£60,815,263£46,855,341£70,902,386£90,441,782£77,390,534

6. The number of current lenders and borrowers between Q2 2018 and Q2 2019 is presented in the table below:

P2PFA platform – lenders (investors) & Borrowers: Q2, 2018 – Q2 2019

 Q2 2018Q3 2018Q4 2018Q1 2019Q2 2019
Current lenders150,041148,484151,207152,921155,384
Current borrowers269,158278,313288,829304,902321,483
Non-Consumer40,61543,83047,457  
–       Business   49,84852,572
–       Property/Real Estate   819936
Consumer228,543234,483241,372254,235267,980

7. Cumulative P2PFA platform level lending data between Q2 2018 and Q2 2019:

P2PFA platform cumulative lending data (Q2, 2018 – Q2, 2019)

  Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
CrowdProperty £23,013,692£27,127,892£33,952,973£40,442,180
Crowdstacker£46,612,890£51,265,724£54,310,946£55,854,888£57,369,864
Folk2Folk£234,562,305£257,130,306£270,860,306£282,879,306£296,519,306
Funding Circle£3,806,000,000£4,183,000,000£4,625,000,000£5,044,000,000£5,422,000,000
Landbay£133,771,821£182,891,798£231,907,991£294,378,607£345,607,621
Lending Works£115,658,873£131,862,745£145,075,844£161,954,993£181,286,828
ThinCats£288,398,000£294,091,000£309,953,000£443,639,000£491,827,000
Zopa£3,418,213,254£3,663,046,416£3,932,312,986£4,222,404,041£4,515,226,385
TOTAL £8,043,217,142£8,786,291,681£9,595,548,965£10,539,063,808£11,350,279,184

 

British Business Bank small business finance markets report for 2018-19 published

Richard Harrington MP, the minister for business and industry, addressed delegates this morning at the launch of the British Business Bank’s small business finance markets report for 2018-19.

The minister talked about his own experience in business, and questioned why so few people in the UK are inspired to entrepreneurship. He expressed his aspiration that entrepreneurialism in the UK would be perceived on an equal basis as qualifying as a professional — and that more businesses would be ‘passed on’ through the generations, as happens in the United States.

Mr Harrington also lamented the impact of uncertainty surrounding the UK’s withdrawal from the European Union, which has had an impact on small businesses’ demand for finance. There has been a long-term decline amongst small businesses in the UK for external finance, and nearly three-quarters of firms prefer to grow more slowly to avoid borrowing.

There is a strong correlation between firm turnover and equity finance: higher turnover firms tend to make greater use of equity investment — which is catching up slowly with levels common in the United States. However, there is a strong association between UK equity ‘clusters’ and the leading universities: indeed, in around half of local authority areas there were no equity deals at all, and in a further quarter there was just one. Addressing the challenge of regional imbalances is one of the main themes for the British Business Bank identified in this report.

As in previous years, most of the growth in small business finance markets has been driven by the non-bank sector. Total marketplace lending in 2018 exceeded £6.2 billion (according to the report), and grew by 21 per cent during the course of the year (with more than £20 billion lent since 2011). The most significant growth within the marketplace lending sector was driven by invoice finance (which is reported to be up 105 per cent on the preceding year).

 

Peer-to-Peer Finance Association platforms surpass £10 billion in cumulative lending

  • Significant milestone passed during the third quarter of 2018
  • More than £900 million lent during each quarter of 2018

Total lending facilitated by P2PFA platforms passed £10 billion during the third quarter of 2018 with the sector’s contribution to the UK economy approaching nearly £11 billion by the end of September – with the most pronounced growth continuing to be found in lending to small businesses.

The quarterly data – which for the first time includes statistics from CrowdProperty which joined the P2PFA in July – reveal that during 2018, platforms have lent more than £900 million each quarter, with the net lending flow of capital increasing between the second and third quarters of the year.

Insights from across the Association include:

  • there is high demand from entrepreneurs to help with succession planning as they make plans to exit their businesses: Employee Ownership Trusts (EOTs) are becoming increasingly popular as employees get the benefit of shared ownership whilst exiting founders take comfort that the interests of employees are being looked after.
  • across all lending sectors, there has been increased interest from institutional investors for loans to businesses, consumer and real estate lending markets are driving additional due diligence on platforms which enable co-investing retail lenders to benefit from loans

An example of the kind of project supported with a loan facilitated through the P2PFA includes Bobbins Bikes, which was founded in 2007 to fill a gap in the market producing stylish leisure bicycles. In 2016, they accessed £250,000 through Funding Circle to build a new online sales channel and reach the next stage of their growth.

Similarly, CrowdProperty, which joined the P2PFA in July, launched their new visual identity in September, facilitating a £1.45 million loan to transform a detached three-storey former Lloyds Bank building into a development of seventeen apartments in Tunbridge Wells. This was another example of a borrower returning to the platform, which has funded the development of 479 British homes, materially contributing to solving housing under-supply issues in the UK.

Commenting on the data, Robert Pettigrew, Director of the P2PFA said: ‘With this exciting milestone it is clear that the significance of the peer-to-peer lending sector’s contribution to the UK economy continues to grow in magnitude. Across the entire spectrum of small business, consumer and real estate lending, each billion facilitated by member platforms represents thousands of borrowers and investors helping each other achieve their goals – accessing the finance that they need or earning attractive returns’.

ENDS

Notes to Editors

  1. Peer-to-peer lending – regulated by the Financial Conduct Authority since April 2014 – involves direct matching of funds between investors and borrowers through an on-line platform. Investors range from retail consumers to institutional investors as well as the government. Borrowers range from consumers, small businesses, property developers and buy-to-let. Peer-to-peer lending platforms match investors and borrowers directly for a fraction of the cost of traditional financial services entities, providing benefits to customers on both sides of the transaction.
  2. The Peer-to-Peer Finance Association (P2PFA) was established in 2011 as a representative and self-regulatory body for debt-based peer-to-peer lending. The P2PFA seeks to inform and educate, promote high standards of business conduct, and work with policy-makers and regulators to ensure an effective regulatory regime. P2PFA members are required to meet robust standards for the transparent, fair and orderly operation of peer-to-peer lending. The member platforms are: CrowdProperty, Crowdstacker, Folk2Folk, Funding Circle, Landbay, Lending Works, Market Invoice, ThinCats and Zopa.
  3. Aggregate levels of peer-to-peer lending by P2PFA platforms between Q3 2017 and Q3 2018:
 Q3 2017Q4 2017Q1 2018Q2 2018Q3 2018
Cumulative Lending £7,168,727,657 £8,033,329,880 £8,962,960,776 £9,982,437,304 £10,999,319,416
-o/w lending to businesses£4,440,151,180£5,039,000,838£5,669,559,956£6,448,565,177£7,204,410,255
-o/w lending to individuals£2,728,576,477£2,994,329,042£3,263,400,820£3,533,871,127£3,794,909,161
Base stock of loans (outstanding loan book)£2,958,326,435 £3,258,708,518 £3,530,634,586 £3,749,920,897 £3,994,953,650
-o/w lending to businesses£1,754,510,098£1,971,666,313£2,170,368,751£2,328,839,798£2,527,017,211
-o/w lending to individuals£1,204,816,337£1,287,042,205£1,360,265,835£1,421,081,099£1,467,936,439
New Lending £733,270,490 £836,982,950 £929,137,724 £1,019,091,811 £934,786,603
-o/w lending to businesses£472,393,077£571,229,385£660,076,506£748,620,503£673,749,570
-o/w lending to individuals£260,877,413£265,752,565£269,061,218£270,471,308£261,037,033
Capital Repaid £508,891,428 £551,968,213 £641,924,952 £757,864,189 £731,157,708
-o/w lending to businesses£337,105,103£369,441,516£446,087,365£548,208,144£516,976,016
-o/w lending to individuals£171,786,325£182,526,697£195,837,587£209,656,045£214,181,692
Net Lending Flow£228,055,356 £277,677,738 £287,533,338 £255,202,073 £263,036,509
-o/w lending to businesses£138,964,268£194,451,870£214,309,707£191,386,810£216,181,168
-o/w lending to individuals£89,091,088£83,225,868£73,223,631£60,815,263£46,855,341
Number of current lenders 134,658 138,829 148,222 150,385 148,834
Number of current borrowers 246,813 263,110 276,278 272,225 281,479
-o/w are businesses43,42548,83454,48543,68246,996
-o/w are individuals203,388214,276221,793228,543234,483

4. Cumulative P2PFA platform level lending data between Q3 2017 and Q3 2018:

 

 Q3 2017Q4 2017Q1 2018Q2 2018Q3 2018
CrowdProperty    £23,013,692
Crowdstacker £35,209,322£37,714,968,£46,612,890£51,265,724
Folk2Folk£176,419,805£191,918,805£212,510,805£234,562,305£257,130,306
Funding Circle£2,747,357,362£3,093,910,983£3,448,615,744£3,806,000,000£4,183,000,000
Landbay£59,561,822£82,627,314£109,445,017£133,771,821£182,891,798
Lending Works£71,699,386£83,183,353£98,772,559£115,658,873£131,862,745
MarketInvoice£1,201,857,191£1,366,252,414£1,611,099,422£1,939,220,161£2,213,027,735
ThinCats£254,955,000£269,082,000£280,174,000£288,398,000£294,091,000
Zopa£2,656,877,091£2,911,145,689£3,164,628,261£3,418,213,254£3,663,046,416
TOTAL £7,168,727,657 £8,033,329,880 £8,962,960,776 £9,982,437,304 £10,999,319,416

 5. Information about Bobbins Bikes can be accessed at: https://www.fundingcircle.com/blog/2017/10/meet-booming-bicycle-company-road-success/.

Contact

Robert Pettigrew (Director: Peer-to-Peer Finance Association):

e-mail – robert@p2pfa.org.uk; telephone: 07771-547462

2018.12.12 – PressNotice – P2PFA platforms surpass £10 billion in cumulative lending

CIPR corporate and financial group annual dinner hears from Treasury Select Committee Chair

The annual dinner of the Chartered Institute of Public Relations’ corporate and financial group was addressed by the Chair of the House of Commons’ Treasury Select Committee, Rt Hon Nicky Morgan M.P., who provided diners with an update on the work programme on which her committee had embarked and recently undertaken.

With around seventy corporate and financial PR practitioners present at the Lansdowne Club in Mayfair, the questions and discussion which followed Ms Morgan’s speech covered a wide range of topics, including the value of diversity in corporate governance; the role of Select Committees in scrutinising public policy and holding various bodies to account; the implications of developments in the Brexit negotiations for financial services and corporate business; and how the current state of party politics might play out in the coming months.

All-Party Parliamentary Group hears about social enterprise in education

A meeting of the All-Party Parliamentary Group on social enterprise was held in Westminster yesterday to hear presentations about the role of the sector in education.

The session began with a discussion about the approach taken in Scotland led by Social Enterprise Academy, where more than a thousand schools (sixty per cent primary schools) had engaged — and the programme was being expanded through the British Council and a franchise model, including some pilots to start soon in London. In Scotland, the establishment of social enterprises in schools has been pupil-led, based on trading, lasting more than a year and requires full school coverage. Pupils are invited to reflect on what they care about, and the participants shift observably from passive learning to active citizenship in the course of their projects.

Two school-focused projects based in east London also shared their experience, citing the value which exposure to the development and operation of social enterprise can have on the curriculum and skills acquisition in practical contexts. The main challenges being co-ordination (rather than capacity) and effective school engagement given the other pressures on education resources.

A representative of the School of Social Enterprise shared the experience that the school has working in education, where starting with the social mission rapidly evolves in a enterprise model. Their objective is not to constrain the ideas of pupils, but to refine in the context of prevailing practicalities. The School of Social Enterprise generally delivers their engagement outside the school day, though it also sits comfortably with the alternative curriculum for those excluded or lesser engaged in academic study. In the adult programmes run by the School, the age of participants is reducing, including a number of graduates seeking to make their way in the social enterprise world: something which might stimulate further engagement with schools.

The scope for Local Enterprise Partnerships to be involved in the resourcing and investment, to complement a number of the projects funded with higher education was suggested as an alternative mechanism for effective delivery.

FCA proposals for peer-to-peer lending considered at Centre for the Study of Financial Innovation roundtable

The Centre for the Study of Financial Innovation (CSFI) hosted a roundtable discussion this lunchtime at Armourers’ Hall to consider the FCA’s proposals for peer-to-peer lending.

Focused on the question of whether the proposals represent a crackdown or coming of age, participants considered the sector’s approach to risk management and protecting the interests of retail investors through robust transparency requirements on platforms (and the extension of comparability between different offerings). The sector’s broad welcome for the main thrust and direction which the FCA has proposed was reflected in the exchanges at the session, and the future prospects for a sector making a useful contribution to the UK economy generally welcomed.

Robert Pettigrew recognised in Peer-to-Peer Finance News Power Fifty for 2018

Three-Line Director, Robert Pettigrew, has been included in Peer-to-Peer Finance News’ list as one of the fifty most influential people in the UK peer-to-peer lending sector in 2018, published by the trade journal this morning.

Compiled in consultation with the key peer-to-peer lending stakeholders, the Peer-to-Peer Finance Association — of which Robert is the Director — is the sector’s trade body and champion of self-regulation. The list also includes the Association’s current and previous chair in the top ten.

Other recipients in this year’s list include the head of the country’s first publicly-listed P2P lending platform, the leaders of fully-regulated ISA providers and other inspiring innovators who are taking the sector to the next level.

The full list of recipients can be found at: http://www.p2pfinancenews.co.uk/2018/11/01/the-peer2peer-finance-news-power-50-2018/

Crypto-currencies, distributed ledger technologies and initial coin offerings dominate Crowd Dialog in Vienna

Three hundred delegates from thirty-countries convened in the Austrian National Library of the Hofburg Palace in Vienna, as guests of the Austrian Parliament, to consider developments in the crowdsourcing and crowdfunding space over the last year. Perhaps predictably, there was a strong focus on the role of distributed ledger technology (DLT), initial coin offerings (ICOs), Security Token Offers (STOs), crypto-currencies as well as peer-to-peer, equity and reward-based crowdfunding. The conference was opened by the deputy chair of the Austrian Parliament — who spoke of the crowdsourcing initiative of the national assembly in establishing the Austrian people’s priorities in the renovation of their building which is due to be completed in 2021. The theme of harnessing the power of the crowd in politics was also followed up in the afternoon when Austrian parliamentarian Martha Bissman opined about how citizen democracy might work.

The conference received a keynote address from Ewald Nowotny, the governor of the Austrian central bank who discussed different approaches to regulatory sandboxes across Europe, and observed that the distribution of alternative finance around the continent is very uneven. Austrian retail bank customers have arrived in the digital age with fifty-eight per cent using online banking at least monthly, and only forty-three per cent using bank counters. He stressed the importance of social objectives in devising regulation — including for traditional finance where the increasing use of algorithms in making lending decisions had generated some quite peculiar outcomes.

Reflecting on approaches to corporate finance, Dr Nowotny explained that the role of small businesses was greater in Europe than in the United States: and that higher risk should be financed through equity: contrasting that venture capitalists required robust risk appetites and products, whilst investment trusts tend towards risk aversion. The contribution of fintech was still small — just 20m Euros in Austria. Legislative change had been enacted there in 2015, but the sector still represented just 0.007 per cent compared with banking.

Finally, on crypto-assets, the governor argued that crypto-currencies were not proper currencies — suitable for speculation and trading, but not as means of payment and store of value.

The role of initial coin offerings was championed in another presentation where Olga Feldmeier reported that $30 billion had been raised through initial coin offerings this year (compared with $55 billion in venture capital last year), with three-thousand companies likely to adopt this approach this year. It was acknowledged that costs remain relatively high, and regulatory and banking complications exist (with banks charging as much as two per cent for an ICO, which is broadly consistent with that for an IPO, but just for managing the payments). ICOs offer the prospect of borderless capital not controlled by banks, which, whilst presenting some risks which need adequate management, can also replicate a global IPO.

The future of crypto-currencies was a feature of the afternoon’s discussion, including with a thoughtful speech by Dr Joachim Schwerin, the Principal Economist in the SME Access to Finance team at the European Commission — with markets identified as the vehicle to determine what does and doesn’t constitute a currency. Traditional banking — which poses significant systemic risk and has a poor track record in small business finance — has a particular dominance in European markets (with three-quarters of small business finance sourced through banks). Conventionally, the banking sector has created money, but with the emergence of new players — such as security token offerings, securities and ICOs — other opportunities are gaining momentum, with distributed ledger technology (DLT) increasingly integrated into the real economy. DLT is one of the four key issues being promoted by the European Commission (alongside genomics, artificial intelligence and quantum physics) with a view to: (i) scaling the internal market, including for crowdfunding; (ii) creating awareness and increasing the appetite: a process for education; and (iii) promoting the security and integrity of markets. An EU Blockchain Observatory had been created, but one challenge is the speed of development in the sector which renders legislation obsolete very quickly. However, establishing global governance for global technology is juxtaposed by the political dynamics which increasingly are shifting in the opposite direction.

All-in-all, Crowd Dialog was another opportunity to reflect on the rapidly-changing world of alternative finance and the broader power of the crowd. It’s clear that there is much to be done to promote the growth of crowdfunding in parts of Europe where experience lags behind that in more developed markets, such as in the United Kingdom. However, the main theme for me at the event was the future of distributed ledger technology, initial coin offerings (security token offers) and the difficulty in determining the future of crypto-currencies. What is certain is that this remains a very exciting field, and one which will fascinate delegates at many such gatherings in the future.

Second annual European Alternative Finance Research Conference, Utrecht

Researchers and academics convened in Utrecht for the second European Alternative Finance Research conference, excited at the prospect that a network for future gatherings could receive support from the European Co-operation in Science & Technology programme.

My own address — shared in the schedule with a presentation from the European Commission — was focused on the evolution of the regulatory regime for peer-to-peer lending in the United Kingdom, and, in particular, the current proposals contained in the Financial Conduct Authority (FCA)’s post-implementation review of crowdfunding regulation. Ensuring that the prospects for retail participation in peer-to-peer lending is enhanced by a rigorous regime for platform disclosures, particularly with the prospect of a broadening investor base is a priority. The Commission’s willingness to prioritise market innovation and development ahead of prescriptive regulation is reflected in the approach adopted in the United Kingdom.

Professor Nir Vulkan of the Said Business School at the University of Oxford, considered whether equity crowdfunding remains a good idea. Tracing the history of crowdfunding back to the dotcom era of the early 2000s (with venture capital moving ‘up the supply chain’) creating a struggle for start-up entrepreneurs to access vital capital of the magnitude of around £150k. Post-2007, the FCA’s instinctive reluctance to let retailers be exposed to the risks of small, start-up enterprise investment was relaxed on the basis of self-certification, which broadened the potential investor base for these early-stage businesses: democratising access to capital and mitigating market frictions. Professor Vulkan considers it too soon to draw definitive conclusions about the sector, but reported on his research on retail investor ‘herding’ behaviour; the increasing entanglement of venture capital and angel investors in crowdfunding (with thirty-six per cent of angel investors using equity crowdfunding); and fresh insights into fundraising strategies.

Ana Odorovic’s paper on whether regulators should mandate disclosure requirements in equity crowdfunding found that a social/market optimality would arise where the net benefits of additional disclosure equalled the marginal cost of the same (which would be less than that sought by investors, but exceed that preferred by a platform). However, a disclosure regime would not overcome the challenge of adverse selection, and would not improve the result due to the costs of processing the information and the co-ordination failure of investors. Indeed, mandatory disclosure might prevent some firms from participating in the market and serve further to aggravate information asymmetry. The discussion focused on the role of quality signalling in platforms approaching the market.

 

A discussion on Wanxiang Cai’s paper explored whether the role of social capital was the same in crowdfunding as in other forms of entrepreneurial finance, given the prevalence of strangers, its online and typically distant engagement. The researcher’s narrative of evolution from the crowd to a virtual community of investors raised questions as to the extent to which a crowdfunding ‘community’ of individual investors’ exists — albeit that there is the potential for it to develop.

A presentation from Professor Gianfranco Gianfrate of Harvard University examined risks and returns in peer-to-peer lending, looking at 68 European platforms and 4,130 peer-to-peer business loans over the period from 2012 to 2017. Professor Gianfrate’s analysis arrived at the counter-intuitive conclusion that risk was inversely related to returns, and he argued for further regulation of the sector. Other delegates suggested that these findings warranted further exploration and explanation.