ECSPR
ECSPR Monitor 4: Challenging Times for German Crowdfunding
In the complex world of crowdfunding regulations, Germany stands out as an unusual case. The current government draft for implementing the European Crowdfunding Service Provider Regulation (ECSPR) has raised significant concerns. What's at stake is the future of the German crowdfunding market, and this draft could have far-reaching implications.
Liability and Its Impact
The heart of the issue lies in the treatment of liability. Under the currently applicable German law (Wertpapierhandelsgesetz), members of the administrative, management, or supervisory bodies of project sponsors or crowdfunding service providers can be held personally liable for ordinary negligence. This is a strict standard that departs from established norms in German prospectus liability law.
The European Perspective
Interestingly, the European Commission has also raised informal questions about the German approach to crowdfunding liability. European laws, including the ECSPR and the Prospectus Regulation, provide for prospectus liability but don't impose such stringent requirements on individual members of these bodies.
Academic Critique
Academic literature has not been kind to the German implementation of the ECSPR regulation. Legal experts argue that extending liability to members of management bodies goes against traditional legal structures. Furthermore, the distinction between negligence standards for different types of body members creates confusion.
The Role of the Future Financing Act (ZuFinG)
Following interventions by German associations and EUROCROWD, parts of the German government thought to eliminate competitive disadvantages for German crowdfunding service providers within the forthcoming Future Financing Act. And indeed, these early discussions led to the publication of a cabinet draft under the Future Financing Act in Spring 2023. This draft aimed to align German crowdfunding liability rules with existing norms.
A Government Divided
While the crowdfunding sector welcomed this early version, the actual government draft from Summer 2023 appears to have made a U-turn. The latest government draft introduces changes to liability rules for ECSPR but falls short of aligning with previous expectations. Liability is now limited to gross negligence, and a reversal of the burden of proof has been introduced. This change could strengthen investors' positions, but it still leaves some questions regarding ordinary negligence.
A Glimpse into the Future
The crowdfunding industry is watching closely as this debate unfolds in Germany. The outcome may have implications for the entire European digital finance market. A resolution of these liability issues could involve European tort law under Rome II or corrections by the European Commission. But the question remains: Can these issues be managed effectively beyond national interests?
Listen on
Recently, EUROCROWD joined its German colleagues at the Digital Lending Association, together with our member Andreas Knopf (General Counsel at INVESDOR), Germany’s leading academic on the issue Prof. Dr. Petra Buck-Heeb (University of Hanover) and Max Mordhorst (Member of the German Bundestag) under the moderation of Constantin Fabricius, Managing Director of the Digital Lending Association. You can listen to the 55 min podcast (German) on for example Spotify, Apple, Amazon or Google (German).
Further reading
Sonderausgabe zur Schwarmfinanzierung, Zeitschrift für Bank- und Kapitalmarktrecht (BKR)
Crowdfunding in the EU – Key Legal, Regulatory & Tax Issues, Report written by EuroCrowd & PwC
