April 5, 2013 marked the first anniversary of the JOBS Act which is aimed to encourage funding of small business via crowdfunding in the U.S. However, the US Securities and Exchange Commission could not frame the regulation to enable the equity- and debt- based crowdfunding in the US. Last week, Britain’s FCA indicated that it’ll bring regulation to protect the borrower’s interest in the crowdfunding sector. The European Commission too has expressed a need for EU-level legislation on crowdfunding and started a consultation that will run up to end of this year. Following the trend, the French government too has proposed modifications in the existing legal framework to boost the growth of crowdfunding sector.
It is estimated by Financement Participatif France that dozens of crowdfunding platforms in France account for EUR 40 million projects funding in 2012. Though a new platform comes up every week, the present rules and regulations hold the sector back. This has pushed the French Minister for Small and Medium Enterprise Fleur Pellerin to have practical and fair rules for the stakeholders. The discussion is focussed more on equity and loan-based crowdfunding platforms and not reward-based platforms like Ulule, Kickstarter and KissKissBankBank.
In France, the lending platforms are subject to a minimum capital threshold, which can go up to €5 million, to become a credit institution and act in accordance with the rules set up by the regulatory authorities such as – European Commission, Autorité de Contrôle Prudentiel and Autorité des Marchés financiers. The equity platforms, in addition to be accredited as Investment Service Providers by the Autorité de Contrôle Prudentiel (ACP), also need to comply with Prospectus European Directive. Minimum capital requirements like – maintaining at least €730,000 in equity capital, tend to be entry barriers for both lending and equity platforms.
In May 2013, The Autorité des Marchés Financiers (AMF) and the ACP, published guidelines to educate the project managers and the crowdfunding platforms about the existing regulations on the rewards, loans and equity as forms of crowdfunding. On September 4, Pierre Moscovici, French Minister of Economy and Finance announced the formation of a specific status of “crowdfunding investment service provider”, to develop crowdfunding industry and to ensure that the funds are directed to the supported projects. Then on September 30th, Fleur Pellerin proposed to set regulations on crowdfunding supplemented by a public consultation until November 15th.
The industry and individuals meanwhile are happy with these steps and did not over-interfere in the functioning of the market. Some commentators have expressed concerns over the upper limits for loan-based crowdfunding. The proposal states a global maximum loan amount around €300,000 per project and a maximum loan amount around €250 per individual per project. No such upper limit is designated for equity or reward-based crowdfunding. To date, these are all proposals and nothing is certain.
If you would like to contribute to these consultations, then you could do it here (France) and here (Europe).