It seems we in the UK may have lost our way.
Reading this http://www.sec.gov/news/pressrelease/2015-249.html SEC press release about the new ECF rules they are passing, the whole approach and structure the US is setting up has a long term vision. We here have taken a much easier grab it now, short term hit. Time will tell who wins.
Whilst the SEC rules are a work in progress, we believe they have identified serious weaknesses in the model established, or more correctly allowed to evolve, here since 2011. The SEC has put the onus firmly on the platforms.
Here are our highlights -
- Platforms required to register with FINRA - not use third party proxy as we have with the FCA.
- Platforms not allowed to raise money for themselves - which very clearly creates a self perpetuating support network
- Platforms to provide communication channels on their sites for OPEN discussion of their offerings. Here we have platform forums that are policed by the platforms and any posts that derogate pitches or the platform are removed - with extreme prejudice, as Jerry would have put it.
- Pitching companies to provide audited or at a minimum reviewed financial statements and tax returns.
- Pitching companies to declare upfront whether they will accept over funding if the pitch completes within its allotted time.
- Pitching companies to provide evidence as to how the company value was reached.
- Pitching companies to provide shareholder information for anyone owning above 20%
- Pitching companies can only be live on one site at any one time - the end of the Tarts Brigade.
- Pitching companies to provide an annual report to the SEC and investors. Evidence here is that companies only provide information to their ECf investors if its good news!
- All of the information above has to be filed with the SEC as well as the platform - so there will no room for platforms claiming they didn't know - something that is rife here.
Overall the emphasis is far more on provision of verifiable information by both companies and platforms than in the model we have. Caveat Emptor will still be the bottom line, but we believe that platforms here get away with all sorts of unhealthy practices which the SEC rules will help to eradicate.
The SEC rules will at the very least help to limit the information asymmetry so prevalent in the UK model. Sure they are more burdensome than here and may cost companies but this a business proposition and an important one. Spending a little time and money to get it right has to make sense. We in the UK appear to have gone for the instant version; probably as a result of the last government's need for results.
So what if anything will our FCA do about it? Now they can see the light, will they follow it?