September 26th, 2018
European Crowdfunding Leaders Propose Regulator Framework
When we recently spoke with Chris Bates and Peter Chapman of Clifford Chance LLP about the prospect of crowdfunding becoming legalized in Europe, one of the biggest hurdles they identified was the lack of a public support for the new model of raising funds.
It looks like that problem may disappear soon enough.
European crowdfunding enthusiasts released a white paper yesterday titled “A Framework for European Crowdfunding.” The report provides an overview of how crowdfunding has successfully aided a number of small businesses and individual projects, and then dives into more specific recommendations about how to implement the fundraising model in the E.U.
The report’s authors suggest a three-pronged approach to promoting crowdfunding in Europe – regulatory changes, education, and research.
“Instead of imposing heavy regulations that are likely to become more confusing between nation-states,” the authors write, “we should look at crowdfunding intermediaries passing qualification criteria focusing on the following categories: operational and financial transparency, security of information and payments, platform functionality, customer protection, and operational procedures.”
Among other things, the report’s authors ask the European Commission:
- to create a pan-European harmonized regime for sub-€5 million offerings - instead of excluding sub-€5 million offerings from the full harmonization regime of the Prospectus Directive;
- to harmonize or coordinate company laws, and to offer features from public company types (which are not necessarily listed companies!) to the “cheaper“ company types;
- for intervention to avoid a highly investor-unfriendly situation whereby every platform operates a different transaction model, depending on the country where it is based (thus depending on the type of model that the regulator in that country deems acceptable);
- to offer an exemption or light license to e-commerce operators (in this case crowdfunding platforms) that accept reclaimable funds or funds that will be used to electronically store and represent money in accounts, as long as mechanisms are used whereby funds are separated from the platforms’ funds in case of bankruptcy and as long as no money creation takes place;
- to harmonise collective investment activities that are currently not harmonised under Undertakings for Collective Investment in Transferable Securities (UCITS) or Alternative Investment Fund Managers (AIFM) directives;
- to clearly define activities that are mentioned in the annex of the Markets in Financial Instruments Directive (MiFID) directive, to avoid any different interpretations and legal uncertainty as to whether a specific crowdfunding platform setup falls within the scope of such an activity or not.
The ultimate goal is to create a “professional and globally competitive industry with established set of rules in the best interest of the European economy,” as well and public awareness, and transparent data around crowdfunding. Several crowdfunding platforms (along with a number of other financial bodies and organizations) endorsed the white paper, including Symbid and Invesdor.
The report comes on the heels of CrowdFuture, a crowdfunding event that took place in Rome only a few days ago. One of the white paper’s authors, Oliver Gajda, outlined some of the issues discussed in the report at that conference. In November, Gajda will meet with representatives from the European Commission to discuss the report's suggestions.