UK regulator’s decision on social investment seen as a “missed opportunity”

Big Society Capital disappointed with Financial Conduct Authority ruling

UK social investor Big Society Capital has said it is disappointed that the country’s financial industry regulator the Financial Conduct Authority (FCA) will not make any changes to how it approaches social investment after a consultation on the issue.

Last year, the FCA launched a consultation investigating regulatory barriers to social investment. Big Society Capital and others had called for a threshold below which financial promotion rules don’t apply so for example a social enterprise could raise £250,000 from individual investors without having to work with an FCA-approved entity. There were also calls for a new category of investor to be created (a social investor category).

But the FCA has responded saying its objectives are to protect consumers, retain market integrity and promote effective competition: “as a point of principle we do not believe that social investors should receive less protection than other types of investor”.

It also says that it does not believe that regulation is preventing the social investment market from developing and that appropriate consumer protections are important if investors are to have the confidence to invest, and if the market is to flourish.

In response Simon Rowell, Strategy & Market Development Director at Big Society Capital, told RI: “It’s disappointing to see that the FCA has not found a way to make it easier for small charities and social enterprises to raise capital from individual investors, whilst protecting consumers.“This is also a missed opportunity to reflect through regulation the reality that many investors have mixed motivations, often driven as much by the social as well as the financial return.”

However, the move has been welcomed by Triodos Bank that had told the FCA that the same standards should apply to social investment as standard investment.

“It’s disappointing that the FCA has not found a way to make it easier”

Whitni Thomas, Senior Investor Relations Manager at Triodos Bank Corporate Finance, said while she had some sympathy that financial promotion rules could be burdensome for small social enterprises, the FCA had made the right call.

She added that the current categories of investors, that are high net worth, sophisticated or everyday investor, worked well.

While the FCA has decided not to change its regulation of social investment, it will work on clarifying the role of the Financial Ombudsman Service, the UK’s arbiter for consumer financial services disputes, with regards to social investment. It says misunderstanding of this in the adviser community may unnecessarily be holding back recommendations to invest in social enterprises. It will work with the Financial Ombudsman Service to clarify for advisors the type of complaints they may consider and how they will be approached.