Odin rages over FCA order to pause crowd investments

The City regulator is cracking down on unregulated share offers after entrepreneurs turned to online services and social media to seek funds from investors.

The Financial Conduct Authority has warned unregulated firms that they cannot help to arrange investment deals for private companies without regulatory permissions.

Sharing information about a fundraising opportunity privately with a personal contact is not considered to be covered by regulation, but promoting an offer to the public is, as is “arranging deals in investments”.

Odin, a service that helps private companies to “pool investments”, said it had been informed by the regulator to pause taking on new customers until it changes its operating model. It said the “FCA has come to the view that deal syndication on a software platform like Odin’s requires a specific regulatory permission (arranging deals with retail investors) that we do not have. Neither, to our knowledge, do any of our primary competitors in the UK.”

It said this contrasted with third-party legal advice, which had said it was compliant with regulations.

Odin said it provided administrative software and services to investors and entrepreneurs “who would often be doing these deals with or without us, for example via lawyers and email. We’re basically tying together a number of previously independent products and services. We put them in one place and make it all work seamlessly with software. There are a number of exemptions from regulation that, our lawyers advised, we were able to benefit from. However, the FCA has taken a different view.”

The company said it understood that some customers were “annoyed” by the disruption, but added that it would “fix this as fast as possible” and expected to be back online within weeks.

Entrepreneurs promoting potential deals listed on LinkedIn, the professional networking site, or other social media services may also be in breach of the rules.

The UK Crowdfunding Association, which represents regulated platforms, said there had been “an alarming rise in the number of founders seeking to raise finance directly from the public via what appear to be unregulated share offers”.

“Investments worth potentially millions of pounds are being sought from small investors who run the risk of investing without the protections available via a regulated investment platform,” Bruce Davis, a founding director of the association, said.

“Any founder considering an unregulated investment offer is running a very real risk of not only breaking the law, and if found guilty up to two years in prison, but also becoming personally liable for any monies raised illegally, including the potential for damages paid to investors who lost money.”

The regulator said: “Promoting financial services without the approval of someone authorised by the FCA is potentially criminal. Anyone seeking to invest should make sure they understand the opportunity and the risks involved. They can also check our register to ensure they’re dealing with a financial firm regulated by us.”