“Kleinanlegerschutzgesetz”: The end for Crowdfunding and „Banking without a Bank“?

Crowdfunding, which by now is not only practiced in the Anglo-Saxon area, will already be stronger regulated in this year. In the recent years a market has developed in Germany, which offers individuals businesses typical of banks (e.g. Deposit and Credit Business as well as Financial Services) without the necessity to have (direct) business proceedings with a bank. Through commercial it was intended to make individuals believe, that it is possible to invest without a bank in a project and to achieve big profit out of it. On closer examination, it becomes clear that in most of the cases it is neither a classic crowdfunding project nor “banking without a bank”, since all crowdfunding marketplaces in Germany cooperate with a regulated partner (credit institution, payment service institution, or financial services institution). Proper prospectus are rare as well as information on a project once the public offering is finished.

In the following months the German legislator will implement through the “Kleinanlegerschutzgesetz” a package of measures, which will build the foundation for stronger regulation of and more transparency on the German crowdfunding market.

The draft law, as adopted by the German Federal Cabinet on 12.11.2014, will bring the following major changes:

  • Specification and extension of the obligation to publish a prospectus,
  • extension of the information of personnel relations of the initiators,
  • the obligation to provide specific information also after the public offering finishes,
  • ban on advertisement for public places (e.g. public transportation, public posters, flyers),
  • the establishment of a Product-Governance-Process,
  • additional powers to the German regulator BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht = German Federal Financial Services Authority).

For shareholder loan and investments, which are economically equal to such investments which require a prospectus, will prospectively require a prospectus approved by BaFin. This prospectus will be valid only for 12 months maximum and will afterwards need an update and approval by BaFin. Every investment should have a minimum duration of 24 months and a cancellation period of at least 12 months.

Specific exemptions will be available for classical crowdfunding, thus investing in start-ups. Shareholder loan and subordinated loan shall not require a prospectus for crowdinvesting up to 1 million Euro, as long as they are offered through an internet market place and each investor is only investing up to EUR 1.000 (or up to EUR 10.000 once the investor proves own assets of more than EUR 100.000). However, the provider is obliged to provide to each investor at least a so called “Vermögensanlagen-Informationsblatt” (a one pager describing the investment to the investor).

Besides extensive supervisory and prohibition powers, BaFin will be empowered to ask the issuer of an investment to certify its accounting with an external auditor. Delate publication of financial statements can be punishment with a penalty up to EUR 250.000. BaFin will provide information about such measures for all investors on its Webpage.

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