Under the new regulatory regime, businesses will enjoy a wider range of options for financing their growth, through equity instruments that fit under the umbrella of “investment-based crowdfunding”, as well as through debt tools, included in a category dubbed “loan-based crowdfunding”. However, we understand that the primary goal of the Crowdfunding Act is specifically to ease regulation in relation to investment-based crowdfunding.
At the moment, investment-based crowdfunding is regulated by the Investment Services Act and by the Finnish Financial Supervisory Authority’s interpretation of the content of the Act. The new proposals will ease the existing regulations in the following ways:
For crowdfunding intermediaries, the administratively onerous and time-consuming operating licence process will be replaced by a registration process that is less expensive, simpler and faster
Crowdfunding intermediaries will no longer need to join the Investors’ Compensation Fund
A crowdfunding intermediary’s minimum capital requirement will be reduced from the present €125,000 to €50,000
An alternative to the capital requirement will be proposed, such as professional liability insurance, a bank guarantee or another corresponding guarantee that the Financial Supervisory Authority (FSA) deems to be sufficient
Minister of Finance Alexander Stubb commented on the proposal:
“The goal is to support the creation of new sources of financing, particularly for innovative growth companies that experience difficulties in obtaining financing through traditional funding channels. Crowdfunding will improve access to financing, particularly for SMEs and start-ups. Through this, it will be possible for them to boost their growth opportunities, investment options, commercialisation of innovations and thereby, hopefully, employment.”
On the loan-based crowdfunding front, the authorities specify that it will be regulated by “clear legislative-level ground rules”. At the moment, loan-based crowdfunding is considered to be “financial mediation”, which is not always regulated by the law. According to the proposal, this type of crowdfunding will be regulated just like investment-based crowdfunding. Three additional key points of the proposed amendments for loan-based crowdfunding – also valid for investment-based crowdfunding – are as follows:
The Act specifies a disclosure obligation for both the crowdfunding intermediary and the business entity seeking funding
The Act regulates the crowdfunding intermediary’s procedures and its obligations towards the investor
The Act includes provisions on the supervision of crowdfunding intermediaries as well as appropriate sanctions
The final note is on investor protection. The policymakers state that rules on the protection of investors will be specified in a separate decree o the Ministry of Finance relating to the disclosure obligation of entities that fund their operations through crowdfunding. The decree will include provisions on risk warnings as well as other tools to protect investors. However, a publication date hasn’t yet been disclosed.
Minister Stubb concluded:
“The Crowdfunding Act will improve new financing options, particularly in bottleneck situations affecting the growth of SMEs. I hope that this will give Finnish companies new courage to innovate and grow.”