A short update on regulatory rumblings from the continent.
The European Union’s financial services commissioner Jonathan Hill has identified venture capital and “crowdfunding” as two potential means of preventing European SMEs from becoming over-reliant on the major banks. In an interview with CNBC, at the Ambrosetti Forum in Italy last Saturday, Mr. Hill addressed the issues that come with over-reliance, and also opined on the matter of regulating the crowdfunding sector:
"If you've got a system that's very dependent on one source of funding, and you have a contraction in bank funding like we had, then that has a very real knock onto the economy."
"If we can diversify and spread it, we can help also achieve a greater degree of financial stability.”
One of the key problems identified by Hill was that many promising European firms, particularly those hailing from the technology sector, are crossing the pond to the US in search of venture finance. This phenomenon may be partially explained through the gaudy valuations that so often seem to be attached to equity rounds in the States. Harmonising regulation across the European market was pitched by Hill as one potential method of keeping firms rooted in the EU, but he is also cognizant of the potentially damaging effects of over-regulation:
"I think crowdfunding is an interesting area, still small, and there my instinct with crowdfunding is this is something that's emerging rapidly… and I think we've got to be careful not to regulate too soon on something like that, that might actually have the unintended effect of choking off that growth."
But although Mr. Hill is right to preach caution, the issue of pan-European regulation will have to be addressed at some stage. The primary reason is that so many continental platforms are choosing to unfurl operations across Europe at an early stage in their development. Admittedly we’ve seen more of this activity from the debt-based platforms – such as Lendico, Zencap, Bondora and EstateGuru. But we’ve also seen equity platforms spread across borders, such as the Dutch platform Symbid, which recently launched in Italy. The Finnish equity crowdfunder Invesdor recently raised €1m for the purpose of opening up the platform to new European markets. If regulation cannot keep pace with these highly ambitious and rapidly expanding platforms, then we could face problems down the line.
In June, the EU’s economic and monetary affairs committee called for a CMU-led support plan for the alternative finance market in Europe. The group emphasised the importance of supporting cross-border investment, and of the efficient use of savings to fund small businesses. With the EU’s financial services commissioner now throwing his own voice into the discussion, the debate is beginning to garner significant momentum.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.