Pioneers Post
social investment

Ten reforms to grow the social investment market

18 July 2012
photo of ten white pieces of paper on green grass to show ten steps

To seize the moment, we would like to see the UK make social impact investment a theme of its G8 Presidency in 2013 and to make the case for a new goal in the revised Millennium Development Goals, centred on increasing the quantity and quality of international social impact investment.

A new report from lawyers BWB sets out an ambitious vision to transform the regulatory environment for social investment, with ten steps the UK Government should take to create a world-leading jurisdiction for social investment. Co-author Luke Fletcher comments on the past, present and possible future of social investment if the changes are taken up

The Origin of the Report

Ten Reforms has been a long time in the making. The proposals set out in the report represent two years’ worth of detailed thought and reflection on the framework for social investment.

Some of the early thinking on the issues covered in Ten Reforms is reflected in my report Investing in Civil Society: A Framework for a Bespoke Regime, which was published by NESTA in June 2011.

This report led to my secondment to the Cabinet Office from August 2011 to January 2012 to advise the Government on steps it could take to remove legal and regulatory barriers to social investment. During this time, I was able to make the case to civil servants for a number of reforms and was also able to refine my thinking through a process of challenge and critique. It was a useful experience.

On returning to BWB, it became apparent to me that, whilst Stephen Lloyd (senior partner at BWB and co-author of the report) and I had a number of ideas about ways in which the regulatory framework could be improved, these were either not in the public domain or in disparate places. It seemed obvious to bring it all together in Ten Reforms. 

Ten Reforms is also informed by the work Stephen and I have done over the last few years for a wide range of clients, including advising on the legal structure of the Big Society Capital group and our involvement in the setting-up of Social Stock Exchange and BuzzBnk, amongst others.

The Status Quo

The law invariably takes time to catch-up with practice. This is very apparent in the case of social investment, where the only references to the phrase are found in the Dormant Bank and Building Society Accounts Act 2008 and the Charity Commission CC14 guidance on investment by charities.

Essentially, advising clients on social investment activity involves fitting square pegs into round holes. As the law does not really contemplate social investment, it often means finding gaps in existing regulation, which can be used as a space for innovation or coming up with creative structures. It sometimes means that projects do not proceed without imaginative legal advice.

A good example is BuzzBnk, a social crowdfunding website. BuzzBnk allows large numbers of members of the public to provide loans directly to social ventures to make good things happen. As there is no clear category of Financial Services Authority (FSA) authorisation for crowdfunding, we needed to obtain clearance from general counsel at the FSA that BuzzBnk would not be considered to be deposit-taking, running a collective investment scheme, arranging deals in investments or issuing financial promotions. 

It would be much clearer for new start-ups and the public if there were a form of regulated activity specifically tailored to the use of websites for crowdfunding and peer-to-peer lending.

The legal and regulatory problems faced by social investment are compounded by various factors:

  • Social investment is new – it often does not fit into Ministerial portfolios or the frameworks of Government departments. For example, it is not clear which Treasury Minister is responsible for social investment or which officials are leading on it. This means that social investment can get dropped and Government can shirk its responsibilities.
  • Social investment is different – there is a low level of knowledge or understanding of social investment by regulators and Government. It involves bringing together different disciplines, in the form of finance and social action, and so is often only half-understood by officials.
  • Social investment is doubly regulated - it is about civil society but it is also about financial markets. This often means complying with two sets of laws: for example, charity law and financial services law. Witness the current difficulties faced by Charity Bank as charity law and international regulatory capital requirements move in different directions.
  • Burdensome financial services law ­­– financial services regulation is very dense and tightly meshed. This means that doing something new and innovative is very hard and growing a whole new market is even harder, as it generally means complying with existing law and regulation which has been designed for other parts of the financial markets and which does not appreciate the shoestring budgets of civil society or local or social forms of investment.

The Future of Social Investment

Ten Reforms sets our vision for the future of the regulation of social investment in the UK.

However, we have also been busy trying to push social investment up the agenda in the City and in Government more generally. We are working, for example, to promote the idea of ‘London as a Global Centre for Philanthropy and Social Investment’ and to rally others to the cause.

The UK has an opportunity to capitalise on its expertise in financial services and the domestic social investment market to become a global centre of excellence for social investment. To seize the moment, we would like to see the UK make social impact investment a theme of its G8 Presidency in 2013 and to make the case for a new goal in the revised Millennium Development Goals, centred on increasing the quantity and quality of international social impact investment.

The Red Tape Challenge

Ten Reforms has been published as part of the social investment theme of the Red Tape Challenge.

The ten reforms we recommend are listed in the executive summary to the report. We see the reforms as a package, requiring primary and secondary legislation and regulatory guidance.

You can submit your comments on the proposals via the Red Tape Challenge website.

We hope that Ten Reforms will receive wide support, will be taken up by Government and will help to lay down firm foundations for the future growth of the social investment market.


Ten Reforms to Grow the Social Investment Market was co-authored by Stephen Lloyd, Senior Partner at BWB, and Luke Fletcher. Luke is a Senior Associate at BWB and co-ordinates the firm’s Social Finance Group.