crowdfunding - legal aspects of new technologies

Many crowdfunding platforms in Poland have focused their attention recently on the regulations governing the offering of financial instruments. This happened largely because of the position of the Polish Financial Supervision Authority (KNF) on interpretation of Art. 72 of the Trading in Financial Instruments Act of 29 July 2005. But in this context it is also worth drawing attention to other, less-obvious regulations that could be applied to crowdfunding platforms.

On 17 July 2019 the General Inspector of Financial Information (GIIF) published Poland’s first AML/CFT National Risk Assessment. This document of nearly 450 pages was prepared pursuant to the new Anti Money Laundering and Counter Financing of Terrorism Act, which introduced regulations requiring GIIF to prepare a national assessment and update it periodically.

The high costs of preparing a prospectus and the required intermediation of an investment firm have discouraged many companies from raising financing through a public offering. Given the low threshold (EUR 100,000) for the value of a public offering requiring publication of a prospectus, the obligations connected with public offerings have also had a negative impact on other methods of financing such as crowdfunding. The new regulations are aimed at relaxing the national requirements by raising the threshold to EUR 1 million and adjusting other regulations to this change.

Reports released by the Cambridge Centre for Alternative Finance leave no doubt that Europe has fallen a long way behind the United States and Asian countries in development of modern financial services. This is especially noticeable in crowdfunding. In Asia Pacific countries, this method generates more than USD 200 billion per year, but only some USD 8 billion in Europe. The proposed crowdfunding regulation is intended to change this by harmonising European laws and introducing a European passport for service providers operating crowdfunding platforms.

Operators of crowdfunding platforms should carefully follow the work on the Network and Information Security Directive. The last draft of the proposal suggests that crowdfunding platforms could be covered by the directive.

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.