On Friday, 14th February 2014, the French Vice-Minister of Economics, Fleur Pellerin presented the draft regulation of crowdfunding which is scheduled to come into effect in mid 2014. The announcement was made public in front of several hundret guests and the European Crowdfunding Network was asked to give public feedback on the proposal, which was used to strongly congratulate the Ministry and the AFM for their very proactive and positive work, but also to criticize aspects of the regulation, such as random maximum investment amounts per investor in any given lending project. There are also details of concern with regard to the special status that will be created for the platforms. However, to date, someof the details are not yet confirmed, so we need to wait until we have further information.
Overall, the outline of the French proposal is very positive, however, with only a number of aspects that will likely need improvement sooner rather than later. Most important, there will be a half yearly review process on the development within the crowdfunding industry and issues that might come up. This will allow the French regulator AFM and the Ministry to quickly adjust rules if and where needed. The French proposal could certainly be used as the basis for a best practice for regulators to approach crowdfunding, though the European Crowdfunding Network would like to see stronger collaboration between national regulators such as the AFM in France, the FMA in Austria, CONSOB in Italy or the FCA in the UK, all of which have or are actively working on regulation. The European Crowdfunding Network has already intervened with a large number of regulators in national discussions but also through special work groups within the European Securities and Markets Authority (ESMA) and Financial Industry Regulatory Authority (FIRNA) in the USA. However, we remain concerned that regulation by national regulators will increase fragmentation of the European market if these are not aligned. In this light we hope for a strong recommendation by the European Commission in March.
In summary, the following aspects have been proposed by the French Ministry and Regulator:
- A quality label by the government for crowdfunding platforms linked to transparency and customer protection aspects
Donations and Reward-based crowdfunding
- No limit on the amounts
- regulation with regard to payments will apply
- A special status for crowdfunding platforms will be created, a so called CIP, which does not require minimum capital
- Transparency rules on cost, information and risk will be introduced
- A light prospectus requirements of just a few pages will govern transactions of up to €1 million
- Investments in light company structures, such as the French Société par actions simplifiée (SAS) – a simplified limited liability corporation under common law somewhat comparable to a Delaware LLC.
- A special status for crowdfunding platforms will be created, a so called IFP, which does not require minimum capital
- A maximum cap of €1m per project will be put in place
- A maximum participation of €1,000 per investor per project in order to ensure risk diversification
- Transparency rules on cost and tax will be introduced
- Information on the risk of each investments and an investment guide to help investors make the right allocation decisions will have to be provided by the platforms