One of the great challenges with the pace of development in technology and the innovations that emerge from it allowing us to do things differently, faster and cheaper is that the regulations that have traditionally governed these transactions lag far behind. This is largely because the processes that create these rules, laws and standards have not accelerated or become more inclusive.
The result? Industrial age laws irrelevant, ill suited or obsolete in the digital world.
In many respects this should not be a problem. It may not be necessary to change, add or amend rules. At the same time where they are needed a bit of extra time to get the “rules right” should be a help. But generally it is a problem not least because any suggestion that new rules are unnecessary is generally perceived as a threat by those who set the rules. They feel they have been by passed, or just that they are perhaps being made redundant or obsolete.
Maybe it is this sense of siege that really compounds the problem with regulators creating poorly informed regulations through no, or faux, consultation, founded in industrial age closed mindsets, or simply trying to squeeze new development into old models.
Responses to collaborative economy models and companies like AirBnB are cases in point as cities look to “approve” people using their own resources to the benefit of the city.
Similarly in the UK we can see the FCA introducing unnecessary additional regulations in the crowdfunding sector.
This might all be just an irritant but unfortunately it can be worse than that. By failing to understand changed models regulators run the risk of creating poorly conceived rules that may strangle new innovations and make the new models inherently less safe – the opposite of what the rule makers would tell us they are seeking to do.
Consider for example the FCA regulations on equity crowdfunding. The so called “unsophisticated investor” is constrained in how much of their investable portfolio they can invest without having their hands held by those “masters of the universe” that did such a fine job of managing the financial markets a few years back. The motivation to mitigate the risk is perfectly fine. the problem is that the process put in place is founded in old world thinking and has no understanding of how crowdfunding mitigates risk – through atomisation.
If the rules had said no individual investment could be more than 1% of an investable pot this would have forced a spread of investment – atomisation – that would both make sense and would be fitting in to the philosophy and principles of crowdfunding.
Another example is the misconceived notion of the “Right to be forgotten” regulations from the European courts. This is both ridiculously difficult to enforce, very easy to by-pass if you can be bothered to put in the effort but at the same time opens up huge risk. The transparency and scrutiny of the crowd is a key self regulating aspect of many crowd based novel innovation online, not least in the crowdfunding world and by permitting individuals to hide aspects of the past, or making it more difficult to check, you expose all of us to risk.
The problems persist now and you need to act. The current consultation by the FCA on the use of social media in crowdfunding intends to constrain and clamp down on what you and I can say online. This will almost certainly increase risk in crowdfunding. The widest reach and greatest scrutiny is driven by awareness is reliant on social media. To constrain it is bad for all of us. So, its very important that you respond to the consultation process.
As it happens I have little faith in the validity and effectiveness of the consultation given the FCAs record. But you must have your say in an effort to get them to wake up to the reality of how the crowd empowered works supports itself, but to defend your own safety when crowdfunding.