Crowdfunding

Abstract

The EU regulators have defined crowdfunding as a means of raising finance for projects from „the crowd“, often by means of an internet-based platform through which project owners „pitch“ their idea to potential backers, who are typically not professional investors. The benefit appreciated by the regulators is providing funds for projects which are normally not tackled by banks or other professional financial institutions, at least not at reasonable prices, due to related risks or small size. There are two commercial types: lending (commonly known as peer to peer lending) and investment-based crowdfunding, providing functions normally reserved to strictly regulated institutions such as banks and investment firms. The international standardsetting bodies refrained from proposing a common international approach at this stage, highlighting that most regulatory regimes for crowdfunding have only recently been implemented. As the general frameworks on banking and securities regulation have not been designed with the crowdfunding industry in mind, and as their application highly depends on individual business models, some convergence is desirable from a regulatory perspective in order to avoid regulatory arbitrage, create a level-business field and ensure that market participants can have confidence on a reliable basis. Further, as an internet-based activity, crowdfunding has a strong potential for cross-border activities. The different national frameworks, even within the EU, are one of the key challenges posed to international platforms that wish to act globally. This is why a moderate regulation on the basis of minimum harmonisation might be in the best interest of the new developing industry.