The ban on the general public investing in unregulated collective investment funds such as social impact bonds, should be lifted, says Luke Fletcher of Bates, Wells and Braithwaite.

Fletcher has recommended that a cap of around £5,000 is introduced below which the public can put money into unregulated schemes such as Big Issue Invest or the Peterborough social impact bond pilot.

At present investment in these schemes is only open to limited categories of investors such as high net worth individuals, certified “sophisticated” investors, high value companies or trusts. The general public can’t invest.

“The introduction of a cap would give people the opportunity to take part,” says Fletcher. “That then creates interest and discussion. All of a sudden people want to know what these social impact bonds are and how they work, whereas at the moment it’s the preserve of charity investors and a small number of high net worth investors.”

Fletcher says that the requirement that all retail offers need to be authorised by the Financial Services Authority, or approved by an FSA-authorised firm should be waived in favour of a social investor exemption

He suggests that public investment below a £5,000 cap should be subject to the issuance of “social offer documents” which comply with minimum standards in relation to, for example, a disclosure on the part of the investor that he or she is investing with a social motive in mind and declarations on the parts of promoters that they have taken reasonable steps to make sure that the offer is clear, fair and not misleading, as well as disclosure of conflicts of interests.

“A lot of social sector organisations simply cannot afford to meet mainstream financial compliance standards, where the cost can run into thousands of pounds,” says Fletcher. “But many members of the public would be willing to accept a less rigorous compliance process for social investment, provided they understand the nature of the risks involved.”

“We need new regulation that acknowledges the need to protect the investor but enables investment to happen. It shouldn’t be easier to bet on the horses than it is to socially invest.”