A consultation argued that it will provide ISA holders with greater choice over how to invest and will support the crowdfunding sector to continue to grow as a source of alternative finance for businesses.
The government will legislate in autumn 2016 to allow certain debt securities issued by companies and offered via a crowdfunding platform to be held in the new Innovative Finance ISA, which will be available for certain peer-to-peer loans from 6 April 2016.
As part of the consultation, the government considered whether to extend the list of ISA-eligible investments to include crowdfunded debt securities and equity.
Respondents tended not to distinguish between crowdfunded debt and equity securities. However, those that did stated that crowdfunded equity potentially poses a higher risk for investors than crowdfunded debt securities because the market tends to cater for riskier businesses and is less likely to provide individuals with regular returns on their investment.
Several respondents argued that equity crowdfunding is currently less likely to meet the consumer protection principle than crowdfunded debt securities, highlighting factors such as uncertainty over investment returns, risks that shares are diluted in future funding rounds, and the lack of consistency over information provided to potential investors. Others noted that the sector is still developing and therefore needs more time to develop a track record of delivering for investors.
However the government said it would commit to further work with the crowdfunding sector and other interested parties to further explore the case for including equity crowdfunding within ISAs.
