The German legislature ratified the final draft of the Kleinalegerschutzgesetz, Germany’s new investor protection law, which became effective 10 July 2015 (see also my previous blog on the early stages of the early stages of this law making process). However, not all the provisions were implemented in July; exceptions apply on the provisions of Art 13 (1) and (2), which come into effect on 1 January 2016 and 3 January 2017 respectively.
1. New rules
The Kleinanlegerschutzgesetz introduces the following major changes:
- Specification and Extension of the obligation to publish a prospectus,
- An obligation to provide specific information also after the public offering ends,
- A ban on advertisement for public places (e.g. public transport, public posters and flyers),
- Establishment of a ‘product governance’ process,
- Additional powers and obligations for Germany’s supervisory authority, the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht).
However, some important exceptions apply to specific FinTechs or financial technology companies.
2. Exemptions for crowdfunding/crowdinvesting
Investments provided through a financial instrument which do benefit from the following described exceptions will require a prespectus approved by BaFin. This prospectus will be valid only for 12 months maximum and will have to be updated afterwards, with BaFin approving the update.
For crowdfunding/crowdinvesting projects up to EUR 2.5 Million a prospectus is not needed, as Long as the equities are offered through an internet market place and each Investor (investment companies excluded) is only investing up to EUR 1,000 (or up to EUR 10,000 once the investor proves that he owns assets of more than EUR 100,000). However, the provider is obliged to provide to each investor with a “Key Information Document” (Vermögensanlagen-Informationsblatt).
3. Exemptions for “social projects”
Also for the investment in so-called social projects (projects for the common good of the society) the prospectus exception as described for crowdinvesting projects applies here as well. There is also no provisions for a certified annual report for the issuer. Having this said, there are strict requirements for “social projects” such as a cap for loan interest, no inducements allowed etc.
4. Exemptions for non-profit organisations
No prospectus (as mentioned for crowdfunding and “social projects”) is neeeded for projects with non-profit orgainizations and religious communities. There is also no requirement for a certified annual report. No accounting standards need apply for projects up to an investment sum of EUR 250,000.
5. Additional BaFin powers
Through the Kleinanlegerschutzgesetz, BaFin is not only allowed to supervise crowdfunding entities, but it is obliged to supervise the collective consumer-protection. BaFin has just established seven new departments covering consumer-protection issues. Therefore even when FinTech (e.g. crowdfunding, crowdinvesting) is not offering regulated banking/payment services and does not need to offer an approved prospectus. BaFin will still supervise such entity due to its obligation to support the collective consumer-protection.