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New and planned regulation of investment crowdfunding

New regulations and interpretations will soon have an impact on equity- and debt-based crowdfunding business models.

Investment crowdfunding (understood to mean equity-based and debt-based crowdfunding) currently enjoys great regulatory leeway due to the lack of regulations specifically addressed to the crowdfunding market. But some current and planned regulations may impede its growth. Recent regulatory proposals as well as interpretations could significantly change the current shape of the market, creating both incentives and barriers for participants.

When will barriers to equity crowdfunding fall?

As we pointed out in our earlier Crowdfunding report, the statutory requirements for trading in shares of limited-liability companies are hampering the growth of equity crowdfunding in Poland. Under Art. 180 of the Commercial Companies Code, sale of a share or a fractional interest in a share in a limited-liability com­pany must be documented in writing with notarised signatures. This essentially eliminates the possibility of effective transfer of shares in an online environment, blocking one of the main values of equity crowdfunding. The current law of capital markets also fails to provide incentives for growth of equity crowdfunding.

A portion of the amendment of the Commercial Companies Code concerning further digitisation of the process of establishment and operation of companies will enter into force on 1 April 2016.1 Pursuant to this amendment, the current wording of Art. 180 will be designated as Art. 180 §1 and a new §2 will be added as follows:

“In the case of a company whose articles of association were concluded using the [electronic] form, sale of shares by a shareholder is also possible using the form accessible in the teleinformatic system. The declarations of the seller and buyer must bear a secure electronic signature using a qualified certificate or a signature confirmed by a trusted profile in ePUAP [the Electronic Platform of Public Administration Services].”

Entry into force of this provision may reduce the barrier mentioned above, significantly facilitating the growth of equity crowdfunding in Poland. While sale of shares using the electronic form will be possible only in the case of companies that were established using the electronic form, and only using a secure electronic signature or trusted profile on the ePUAP system, this is still a major change from the status quo. Changes in the regulations governing electronic signatures, which will probably be introduced in order to bring Polish law into compliance with the EU’s eIDAS Regulation,2 should also help popularise the use of electronic means of identification which can be used for buying and selling shares.

But the amendment referred to above does not go into effect until 1 April 2016, which could seem like an eternity in the fast-moving crowdfunding market. Polish lawmakers should not end with that change. One opportunity for examining the needs of the equity crowdfunding market could be the amendments to the Commercial Companies Code now being planned at the government level (and currently at an advanced stage of drafting) involving reform of limited-liability companies, including introduction of no-par shares.

Trends in development of debt crowdfunding regulations

In recent months regulators have taken an increasing interest in various forms of lending-based crowd­funding. This is not surprising, as this model raises many more legal challenges than more traditional forms of crowdfunding. Recently the European Banking Authority issued an important opinion on this matter.

The EBA presented a number of risks which it believes are tied to the use of crowdfunding platforms using a lending-based model. Firstly the EBA pointed out that crowdfunding platforms seek to limit their own role merely to that of an intermediary bringing lenders and borrowers together. Consequently they need not meet the requirements imposed for example on entities issuing consumer loans. This applies in particular to the duty to examine borrowers’ creditworthiness.

The EBA is in favour of imposing on crowdfunding platforms certain obligations with respect to informing investors about the borrowers and about the risks connected with the investment. Platforms would also be required to perform legal due diligence of borrowers and to examine their creditworthiness. And the activity of such platforms should be subject at the very least to notification of the relevant financial regulator.

A very important element of the EBA recommenda­tions concerns application of the Payment Services Directive to the activity of crowdfunding platforms.3 In this respect the EBA’s recommendation is more sweeping, and does not refer only to platforms using a lending-based model. The EBA indicates a need to consider applying the PSD to crowdfunding platforms because they intermediate in the transfer of funds between investors and beneficiaries. At the same time, the EBA points out the discrepancies in interpretation between certain EU member states. The EBA there­fore proposes seeking a uniform interpretation of the PSD in this respect. Work on a new version of the direc­tive clearly presents an opportunity to do this.

But the EBA appears to resolve one of the most significant legal doubts connected with lending-based crowdfunding: whether it qualifies as banking activity. The EBA takes the view that the standard crowd­funding platform using a lending-based model does not perform regulated banking activity.

Apart from monitoring initiatives at the EU level, crowdfunding platforms should also closely observe the work underway in Poland on the proposed Act Amend­ing the Financial Market Supervision Act, the Banking Law and Certain Other Acts.4 This proposal would introduce the concept of a “lending institution” into Polish law. Under the proposed definition, this would mean an institution making loans out of its own funds. This construction of the definition would mean that the great majority of crowdfunding platforms would not be treated as lending institutions, because they do not make loans out of their own funds. On one hand, this mean that the platforms would not be required to comply with the requirements set forth in the proposed act. On the other hand, however, they could not take advantage of the entitlements provided for in the proposal for lending institutions—for example, the ability to refer to information about borrowers which the credit bureau gathers from banks. If the EBA’s recommendation for mandatory examination of bor­row­ers’ creditworthiness were enacted, access to such information would obviously be of great value to the platforms.

The legislative proposal also includes another provision which could be of great importance for platforms. Accord­ing to the proposal, the Polish Financial Supervision Authority would be authorised to conduct investigations to determine if there are grounds for filing a criminal complaint under certain laws governing the market sectors overseen by the regulator. In practice this could mean that the Financial Supervision Authority could investigate whether a crowdfunding platform was for example conducting regulated payment services.

Krzysztof Wojdyło, New Technologies Practice and Payment Services Practice, Wardyński & Partners

Jacek Czarnecki, New Technologies Practice, Wardyński & Partners

The article is a part of the New Technologies Newsletter, June 2015


2 Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identifica­tion and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC.

3 Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC.