kingsley napley crowdfunding legal concerns

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Crowdfunding: often overlooked legal concerns4 October 2012

Andrew Solomon, Corporate & Commercial Solicitor

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Financial Services Authority

• Regulated Activities

• Financial Promotions

• The FSA’s opinion

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Regulated Activities (1)

• The ‘general prohibition’ under FSMA 2000:

> a person (individual or corporate body) may not carry out a regulated activity in the UK unless authorised (by the FSA) or an exemption applies

• Contravention is a criminal offence – up to 2 years in prison and/or an unlimited fine

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Regulated Activities (2)

• Dealing in investments as principal or agent

• Arranging deals in investments

• Advising on investments

• Etc etc etc

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General exclusions

• Regulated Activities Order 2001

> Sets out circumstances where the general prohibition does not apply

> E.g. the exclusion applicable to groups and joint enterprises

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Financial Promotion Restriction

• A person (individual or body corporate) must not, in the course of business, communicate an invitation or inducement to engage in investment activity…

• …unless authorised by the FSA, the content of the communication is approved by an authorised person or an exemption applies

• Contravention is a criminal offence – up to 2 years in prison and/or an unlimited fine

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Financial promotion: exclusions

• Financial Promotion Order 2005

> Sets out exemptions to the financial promotion restriction e.g. when the communication is made to certain recipients:

» Self certified sophisticated investors» High net worth companies etc.

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FSA Opinion: August 2012

• “Many crowdfunding opportunities are high risk and complex”

• “We believe that crowd funding should be targeted at sophisticated investors”

• “Almost all crowdfunds are not authorised by us and you will not have access to the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS) if things go wrong”

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Andrew Solomon, Corporate & Commercial SolicitorKingsley Napley LLPasolomon@kingsleynapley.co.uk 020 7369 3794

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