The Finnish Government has disclosed the submission of a proposal to introduce the Crowdfunding Act – a new law that aims to improve crowdfunding regulations in Finland. In a note released by the Ministry of Finance, the policymakers stated that the objective of the Crowdfunding Act is to clarify the responsibilities of various authorities in the supervision of crowdfunding, to improve investor protection and to diversify the financial markets.
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:
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 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.”