Financial services providers & Crowdfunding Crowdfunding: Overview

Crowdfunding: Overview

Published on December 11, 2014

Crowdfunding is booming, and offers a possible funding alternative for businesses. This funding mechanism can contribute to mobilising funds for long-term investment. However, there are risks for investors. This is why the AMF (in collaboration with the ACPR (French Prudential Supervisory Authority), the French Ministry for the Economy and Finance and crowdfunding associations) set up a regulatory framework which is supportive of crowdfunding while protecting investors.

What is crowdfunding?

Crowdfunding has no legal definition. The notion of crowdfunding refers to fund raising activity - generally small amounts - to finance a specific project via the internet. The financed projects may be artistic, humanitarian, social or entrepreneurial in nature.
Crowdfunding covers a variety of types of funding including donations with or without counterparty, loans with or without interest or even buying securities (capital or debt).

A specific regulatory framework

In February 2014, following a public consultation, the AMF, ACPR and the Ministry for the Economy and Finance launched a supportive framework specifically dedicated to crowdfunding while ensuring the protection of investors, making France a pioneer in crowdfunding regulation.
In addition to the provisions applicable to platforms wishing to use the European MIFID passport to provide investment services (see article on the platform's regulatory status), the new national regulatory framework created two distinct systems for lending platforms and those offering securities subscriptions. This new framework came into force on 1 October 2014. As a reminder, since this date, any platform wishing to provide a crowdfunding service has had to choose one of the statuses below: CIP (Crowdfunding investment adviser), IFP (Crowdfunding intermediary) or PSI (Investment service provider). 

Crowdfunding in Europe
In Europe, Italy and the United Kingdom have also created legal frameworks applicable to crowdfunding. Several countries (Germany, Spain) have taken legislative measures to regulate this activity. Faced with the risk of legal fragmentation between Member States, the European Commission has set up a group of experts called the "Forum européen des acteurs du financement participatif" (European Crowdfunding Stakeholders Forum) to determine the potential and risks associated with crowdfunding in order to assess the need for European action in this area. The European Securities and Markets Authority (ESMA) should also be publishing a document on crowdfunding. 

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