A regulation for crowdfunding has been on the agenda of Angela Merkel for a while, as a measure to foster the growth and establishment of a digital economy in Germany. The first drafts of the regulation, which were published during 2014, received many criticisms from the German crowdfunding ecosystem, which deemed them overly restrictive, potentially able to kill the growing German market of crowdinvesting. However, for the relief of many, the final version, which was approved last week, is softer than the original ones, having eliminated a couple of the most stringent restrictions.
The adopted regulation includes the following modified rules:
- Investment limit. While for retail investors the investment cap remains at €10.000 (provided they show they can bear the risk of a loss, otherwise the maximum investment for them drops at €1000), professional investors are now exempt from such a limit.
- Prospectus requirement. All companies raising up to €2,5 million via crowdinvesting are now exempt form the prospectus requirement. Previously, the limit above which the prospectus obligation applied was €1 million, which was heavily criticized, since the prospectus document is notoriously very expensive and time consuming to produce, especially for small companies.
- Investment Information Sheet. In the previous versions of the regulation, investors had to manually sign and send via mail to the crowdfunding platform the Investment Information Sheet. Now, this process can be carried out electronically, which should make investing easier and smoother for all investors.
- Advertising. Originally, the proposed crowdinvesting legislation limited the possibility to advertise crowdfunding campaigns to media focusing on economic topics. This of course would have been a big obstacle for crowdinvesting, given that it is by nature strongly tied to social media and networks. The approved law removes this ban and allows for advertising also through other channels, such as social media, provided that the communication includes adequate warnings about the risks associated to the investment.
Overall, ECN believes that the German crowdfunding regulation, as it was approved by the Parliament last week, represents a positive case, having followed the many suggestions coming from the relevant stakeholders in the market, which have now contributed to make it a fairly good legal framework for crowdfunding to flourish in the country. Although some limitations remain, ECN is confident that the rules could be improved during the review of the legislation scheduled for 2016.