Crowdfunding Regulatory Framework in Europe: Germany and Italy compared


As an important lead-up to the Renewable Energy Crowdfunding Conference (London, 5 November 2015), Solarplaza is releasing an overview report, “Crowdfunding Regulatory Framework in Europe”. Here we give a glimpse into the report that shows how the situation is far from consistent or transparent with difficulties still to overcome. Sign-up here to receive the full report in your inbox as soon as it is published.

Regulatory frameworks are being established across the EU that will allow for the rapid growth of the sector over the rest of the decade. At the local level, crowdfunding looks set to flourish; but what are the current regulations in the different European countries? And how easily can these be harmonized to enable investment across borders?

CitizEnergy is an EU project that is attempting to launch an aggregator platform that can work cross-border within Europe. By 2017 the project, with 14 partner organisations from 11 European countries, will have piloted six renewable projects in 6 European countries.

Part of the project is Abundance Generation, a crowdfunding platform that has raised almost £12 million to support 13 renewable energy projects since 2012. Managing Director Karl Harder explains: “The challenges of harmonizing regulations are immense and it will take time to unpick the issues and truly realize a cross border platform, something our clients are consistently asking for."

So what is the current situation in Europe for crowdfunding projects? How does the regulatory framework differ from country to country? What are the requirements for crowdfunding investment in the different jurisdictions?

We decided to compare the situation between two emblematic EU founding members: Germany and Italy.

We begin in Germany where the situation is best explained by Tanja Aschenbeck-Florange and Thorge Drefke from Osborne Clarke, an international legal practice.

“The most recent regulatory development was the promulgation of the German Retail Investor’s Protection Act (Kleinanlegerschutzgesetz – KASG), which came into force on 10 July 2015. This law affects several investment products, and these include almost every investment offer on crowdfunding platforms.

However, “in order to keep this increasingly popular method as an opportunity for both, (retail) investors and start-ups/projects entities, the legislator introduced the so-called ‘Crowdfunding-Exception’ which excludes crowdfunding from most requirements of the VermAnlG, especially the duty to publish a prospectus”.

So, who qualifies for Germany’s Crowdfunding-Exception incentive?

Eligibility relies on certain conditions being met:

  • Only applicable when offering profit participating loans (partiarische Darlehen), subordinated loans (Nachrangdarlehen) or commercially comparable investments (wirtschaftlich vergleichbare Anlagen);  
  • Amount per project shall not exceed the threshold of EUR 2.5 million;  
  • Total investment amount for each investor is limited to a maximum of EUR 10,000; if exceeding a threshold of EUR 1,000 investors must comply with further requirements, i.e. self-exploration on wealth or income;  
  • Corporations (Kapitalgesellschaften) are not limited to the absolute maximum investment of EUR 10,000 per investor  
  • Crowdfunding platforms need a licence under the German Trade, Commerce and Industry Regulation Act (Gewerbeordnung), under the German Banking Act (Kreditwesengesetz) or the German Securities Trading Act (Wertpapierhandelsgesetz).

Behind all this, however, the so called ban of combination (Kombinationsverbot)  - which prohibits to combine the Crowdfunding-Exception with other exceptions (Private Placement) – results in uncertainties as the legal definition is unclear. These uncertainties could hamper parallel investments of professional investors and the crowd in Germany.

Moving south to Italy we spoke to Roberto Culicchi of Hogan Llovells, an international law firm.

“Italy was the first European country to develop a relatively complete regulation of crowdfunding. On 14 July 2013, CONSOB (the Italian financial supervisory authority) published its Regulation on equity crowdfunding, hoping to emulate the prior successes in the US and Australia, and thereby revitalise the Italian capital market. Unfortunately the Regulation only referred to innovative start-ups and to equity financial instruments, making the equity crowdfunding market slow to take off in the country.

“Recent changes in the law did include venture capital companies and undertakings for collective investment among those who are allowed to raise capital online. It is hoped this will help promote technological development and youth employment in the coming years.”

Early results, however, do not appear very encouraging. After more than one year of the Regulation being in place, the market is overpopulated with “empty” platforms, while deal flow and the number of investors remain low.

Nevertheless Culicchi concluded optimistically: “It will take time for a definitive evaluation of the impact of the Regulation, and it is hoped that equity crowdfunding will eventually flourish in Italy as peer-to-peer lending and reward crowdfunding.”

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