The cuckoos in the Net incubator nest

Internet incubators could find themselves at the wrong end of legal action, according to the Financial Times. The companies offer consultation services and sometimes investment in return for stakes in hatchling net businesses.

Many new incubators have failed to ask for authorisation under the Financial Services Act, because they thought it did not apply to them. But if they do not qualify for one of the exemptions or exclusions in the act, they may be breaking the law.

"There is a real risk people believe there isn't a problem because they think they are just running parties or are just investing their own money," said Margaret Chamberlain, a partner at law firm Travers Smith Braithwaite. "To carry out investment business without authorisation is a criminal offence."

The part of the act that is causing the trouble concerns the concept of arranging investments. A person who runs any kind of infrastructure allowing people to make deals may be subject to the requirements of the act. Companies could also find themselves in trouble if they were considered to be "advising" investors or "dealing" as an agent or principal.

The Financial Services Authority says there has been a recent, small, increase in applications for authorisation from incubators.®