Keep standards high to reach explosive potential warns FSA

The potential for community share issues to be ‘explosively good’ for society could be threatened by poor quality paperwork, says the UK’s financial regulator.

Paul Sharma, prudential policy director of the Financial Services Authority, told an audience of community entrepreneurs, social financiers and support organisations that community enterprises had been given great freedom when it came to regulation around share offers. But with ‘great freedom comes great responsibility’.

Sharma said: ‘I think the community shares movement has the potential to be explosively good for society and in a decade’s time we could be talking about a vastly larger movement, but whether it reaches its potential depends on how it discharges its responsibilities, including how it raises money.’

Sharma said that share-offer documents needed to be much clearer about the risks and returns involved in community-share schemes, including the potential social returns.

‘It is important that you keep standards high,’ said Sharma.

However, he was not suggesting that the FSA would now step in to regulate these documents.

He told Social Enterprise that he would like to see the development of ‘co-regulation’, where the quality of share offers is essentially regulated through peer-pressure by the movement.

This would allow ‘the appropriate degree of freedom for the movement to achieve its potential’ without being stifled by the regulations corporate share offers are subject to.

Sharma was speaking at a Development Trusts Association event last week, which saw the launch of two publications aimed at helping develop best practice for community share issues.

Researcher Jim Brown argued that the hike in interest in community share offers from an average of four a year at the beginning of the decade to at least 28 in 2009 heralded a ‘cultural phenomenon’.

‘The world has changed profoundly over the last 18-20 months,’ said Brown.

Social Enterprise is looking at the growth of community share offers and what it means for rural communities in the upcoming print issue of the magazine, out next week.