Twintangibles  |  By Daniela  Published on April 4th, 2013

On 29/03/2013, CONSOB, the Italian equivalent of the Securities and Exchange Commission,  published the Regulation implementing Article 30 of the Law Decree n. 179/2012 (Decreto Crescita), which introduced equity crowdfunding in the Italian Trattato Unico Finanziario (Financial Services Act). The regulation is now open for public consultation until 30 April. These are the key features you need to know.

This marks an important date for Italy, making it  first in Europe  to enact specific legislation addressing one of the most important and disruptive phenomena of recent times namely equity based crowdfunding. Innovative startups will soon be able to use equity crowdfunding described as  “the widespread collection of risk capital through online portals” or more simply to raise money by selling their shares online, up to a total value of 5 million Euros.

The regulation represents a well-thought out, detailed and thorough document, and above all it fully reflects the suggestions of the industry leaders who participated in the questionnaire distributed in February. CONSOB has used the “wisdom of the crowd” and listened to suggestions and criticisms received through the questionnaire, which was part of a broader and more detailed impact analysis on crowdfunding. The result is a good example of evidence-based regulation as well as crowdsourced legislation.

CONSOB states that this Regulation is to “enable the development of an initial phase of ‘testing’ of capital raising through online portals, with the main purpose of promoting the development and growth of the country.” In a country where the awareness of crowdfunding is still low, it is essential to consider this regulation as part of testing process for the raising of capital through online portals. In November, our survey of Italian crowdfunding platforms done in collaboration with Ivana Pais of Cattolica University (Milan) highlighted that many crowdfunding project owners had a fundamental lack of understanding of the basic principles of crowdfunding, and a lack of strategic thinking in crowdfunding campaigns. The results also highlighted low awareness of crowdfunding among the general public, in the view of crowdfunding platform owners. It’s fair to say that this legislation comes in ahead of the market, but this is not necessarily a bad thing: now it can serve as a guide to the market itself.

Throughout the CONSOB Regulation emerges a strong will to reduce the administrative burden in equity crowdfunding, an important requirement if the incremental cost of collecting funds is to be kept low. So, for example, allowing much of the  “paperwork” to be processed online through the use of certified electronic mail (PEC).

The social nature of crowdfunding and the scrutiny that this brings seem to contribute to a relatively low level of fraud and default in crowdfunding, in all its forms.  As volume of transaction increases it remains to be seen how this “crowd policing” develops, but the CONSOB regulation seems to have both recognised and embraced the fundamental underpinning of this behaviour by stressing and insisting on transparency requirements in its provisions.

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