Short presentation, concerning legal barriers around equity crowdfunding in Europe. The presentation was used during a meeting that was organized by Eurada, in the presence of representatives of the European Commission, and hosted in the buildings of the European Economic and Social Committee.

1. Crowdfunding with
27+ regulators
J u n e 7 t h , B r u s s e l s
K r i s t o f D e B u y s e r e

2. Three legal barriers
1.Promotion restrictions are not designed with
the internet in mind
2.Private or closely held company regimes may
hinder new shareholders to underwrite
3.Financial services regulations may put
platform operators in legal uncertainty

3. Promotion
restrictions
Prospectus required,
€5m Prospectus Directive
(€2.5m until end of June
’12)
Member states may
choose their own regime.
Thus: cross-border
promotions may be costly
€100 000 Member states may not
impose a prospectus
€0
NB 1: member states may also not impose a country-specific prospectus regime, even not in the zone
between €100 000 and €5m, if only 150 persons per member state are addressed, if only qualified
investors are addressed, or if tickets of minimum €100 000 are promoted.
NB 2: platforms that promote stakes in an intermediate platform entity, instead of the final
investee (often to reduce administrative barriers), will very quickly reach the €100 000 threshold.

4. Promotion
restrictions
Possibilities for the internet age:
Use exemptions that are based on an
investment cap per investor (instead of
exemptions that are based on the number
or type of investors, or the total amount of
the offering)?
And/or offer a harmonized country-
preempted regime below €5m (instead of
almost 30 country-specific regimes, or a
prohibitively expensive €5m+ regime)

5. Restrictions in
company laws
Most startups opt for a “cheap” corporate regime: a
private or closely held company regime, instead of a
public company regime
These “cheap” regimes contain restrictions on
transfering shares, or accepting new shareholders:
good for family owned businesses, bad for
entrepreneurial growth companies
Company regimes are country-specific: information
costs and advisory costs remain high, both for
investors and entrepreneurs

6. Restrictions in
company laws
Possibilities?
Offer a company regime to entrepreneurial firms, that
is cost-effective and open to accepting new
shareholders (thus merging features of private & public
company regimes), and which has a mechanism to issue
shares that would fit the information age.
Implement the regime Europe-wide, to reduce
information costs, to prevent regulatory capture from
national organizations or advisors, and to offer cross-
border investors a regime that they understand and
already know from their home state.

7. Restrictions from
investment services
A problem of platforms
The source of the problem: a combination of
uncertainty about interpretation, and a lack of
exemptions in the rules, allows regulators to
potentially place platforms in heavily regulated
regimes. This is a substantial risk for platforms.

8. Restrictions from
investment services
Example & recommendation
According to Directive 2006/48/EC, you must be
licensed as a credit institution to be able to accept
reclaimable funds from the public. So, what about
platforms that allow their investors to reclaim their
money, after a failed campaign?
Recommendation: create legal certainty, by way of an
exemption, that the platforms that care most about
their investors, don’t risk the hardest regime

9. Restrictions from
investment services
Example & recommendation
According to Directive 2006/48/EC and 2009/110/EC,
you must be licensed as a credit institution to be able
to electronically store monetary value that can be used
for payment transactions. So, what about platforms
that display the amount of funds that an investor has in
his virtual account, and that he can allocate to
campaigns from investees?
Recommendation: create legal certainty (exemption)

10. Restrictions from
investment services
Example & recommendation
When the AFIM Directive will be implemented (22
July 2013), member states need a minimal regime for
sub-€100m non-UCITS collective investment
undertakings. Some member states already have/had
such a regime. So what about platforms that act as an
investment pool between companies & investors?
Recommendation: create legal certainty (exemption +
passport) that investment pool based platforms will be
able to operate and promote Europe-wide, like the
proposal for AFIM-exempted venture capital funds

11. Restrictions from
investment services
The MiFID Directive is however the worst one:
According to the MiFID Directive, a number of
activities are regulated: placing of financial
instruments, executions of orders on behalf of clients,
reception and transmission of orders in relations to one
or more financial instruments, services related to
underwriting, operating a multilateral trading facility
(and in the future potentially also an organized trading
facility).

12. Restrictions from
investment services
The MiFID Directive is however the worst one:
It is too costly for a platform operator with cross-border
intentions, to interact with all regulators, to solicit their
interpretations of those MiFID regulated activities.
Even if a platform operator would opt for the option to
go for a MiFID passport, then the problem of client
classification and obligations towards clients under
MiFID (still) exists: complying with that, makes the
platform substantially less appealing for users

13. Restrictions from
investment services
Thus, offer legal certainty, by way of exemptions,
that allow platforms to operate within certain
boundaries, without facing awkward side-effects.
If no Europe-wide certainties and exemptions are
created, then the current trend will continue where
platforms come up with a wide variety of different
transaction models, to comply with the
administrative barriers and interpretations in one
country. This is trend is very investor unfriendly.