Will Regulation Squash Equity Crowdfunding in Germany?

By AltFi on Tuesday 5 August 2014

Savings and Investment

The proposed regulation of the German crowdfunding market has received a bashing from one of the sector’s leading participants.

The German equity crowdfunding platform Companisto has stated that the German government's draft for retail investor protection laws could be highly damaging for crowdfunding in Germany. The German equity crowdfunding space is more diverse than you might think. There are four major operators – SeedMatch, Companisto, Bergfurst and Innovestment – each of which will be doubtless be concerned by the proposed regulations. Companisto is in the process of preparing – in cooperation with the German Crowdfunding Network (GCN) – a detailed breakdown and assessment of the proposed laws.

Companisto offered an in-depth explanation of the situation:

“After initial inspection, it is clear that the draft law significantly threatens the continued existence of crowdinvesting in Germany. The provisions of the bill are designed to penalize hundreds of millions of euros of financial products and accordingly initiate bureaucratic and costly procedures and processes. These bureaucratic procedures and processes will now be applied to the Crowd Investing sector.”

“The young crowdinvesting industry, which has invested more than 30 million euros in more than 100 young innovative companies should be regulated with a few exceptions, such as the 1.4 billion euro investment by Prokon, although the total volume of all executed in Germany Crowdinvesting accounts for only 2% of the investment volume of Prokon.”

“Through a joint initiative of independent individuals, a crowdinvesting movement was successfully begun and German and international policies developed; to achieve such a goal, especially from a political perspective, is a stroke of luck. But now, the German crowdinvesting industry is liable to be affected by political intervention.  Germany’s current market-leading position in the global crowdinvesting competition would be lost in no time.”

Whether or not Germany’s equity crowdfunding space is indeed leading the world is up for debate. German platforms have accounted for upwards of €30 million – but the UK equity crowdfunders have raised nearly £50 million between them. Still, the €30 million is a significant figure and it would be a crime to see so promising a market squashed. Companisto alone has provided over €9m for startup businesses.

“It should be clarified that the crowdinvesting industry vouched for absolute transparency, the interests of consumer protection and German crowdfunding networkeffective and feasible support measures. This is in the best interest of the crowdinvesting industry, because only when the crowdinvestors are informed about the risks, can crowdinvesting be long term. Therefore, German Crowdfunding Network platforms have been designed in collaboration with Crowd Investing investors’ industry standards in a code of conduct to ensure high quality and standards information.”

So what are the specifics of the proposed laws to which Companisto objects?

  • A media break by signing an investment information sheet
  • A low investment ceiling compared to other European countries
  • A competitive disadvantage by unilateral action contrary to the recommendation of the EU Commission

Regulation usually arrives hand in hand with significant growing pains. A number of UK platforms were up-in-arms when the FCA first revealed its rule banning retail investors from investing over 10% of their investible assets into equity crowdfunding. But that once-infamous rule is now generally seen in the UK as a sensible step forward for a clearly high-risk, but potentially high-reward sector. AltFi will continue to dig in order to learn more about the proposed laws in the German space.

For now though, Companisto is calling on the Crowd to intervene:

“Feedback from the crowd could have a significant influence on the legislative process, these laws were created without crowd investors being questioned.” 

You can learn more about this situation by visiting Companisto’s initial report and survey

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