What the crowdfunding industry has taught us worldwide is that “the crowd” will “out” a bad actor long before any of the regulators do.
Regulators came out of the USA “blue sky” laws written state by state between 1911 and 1931. In these times there was no internet, little communication from town to town, regulators used broad laws to catch bad actors when they needed to, and when they found them. They may have got “tip offs” but as can be seen in this article the regulator often chooses their target.
It was a different world then. (1931)
- Regulators were on the road or the local office as were the transactions
- Local Regulations were implemented state by state
- Regulator only got interested when people had already lost their money
- It was difficult for citizens to voice concern as a group or to be involved
- Transaction volume and complexity was relatively low
Now there are millions of transactions, many of them complex, and a myriad of international players
- Regulator resources are limited
- Differing International Regulations by multiple regulators
- “The Crowd” is often involved long before an investment offering manifests
- Crowd can easily be included in the assessment or “outing” of issuers and their offering and publishing it
- Transaction volume and complexity is high
In this environment, building new “regulatory regimes” without basing them on the views and input of the millions of people involved in these transactions is neglecting reality. Campaigns can be closed down before the money leaves escrow accounts because the crowd simply communicated or shared that this entity or these people are not the ones you should be doing business with. This ability was not around in 1931. Back then the money was long gone before the regulator actually caught up with them.
Today’s currency is trust.
Todays asset is loyalty.
The need for transparency has huge traction.
Businesses and individuals disobeying this do not survive
All participants know that their deeds, good or bad, are public via the internet for the rest of their life and often that is motivation enough to curtail misrepresentation etc. However this coupled with an ever watchful crowd and and social media channels to gather and share views means that the government and their delegated regulatory entity would be far more effective if they empowered this army of vested interests and went lighter on the all encompassing rules like the soon to be implemented crowdfunding regulations.
Raising the bar to limit transactions due to deal size or investment amount is one way of running a regulatory regime.
A better way is to recognise that it is a different world now moving from centralized to decentralised transactions where the people that really know what is going on are the very people that know the people and stories behind the deals.
These are not intermediaries.
They are people doing their homework before recommending or investing. The crowd. They will catch a “bad actor” long before the regulator will even if the regulator keeps doing what they are doing on a larger scale with a bigger budget.