Equity Crowdfunding Regulations
The Italian CONSOB (equivalent of the SEC) has published a proposed set of rules around equity crowdfunding for public discussion until April 30th. Italy is the first country in Europe enacting specific legislation adressing equity crowdfunding. It seems to be well-thought out. Daniela Castrataro, co-founder of twintangibles:
CONSOB has used the “wisdom of the crowd” and listened to suggestions and criticisms received through the questionnaire, which was part of a broader and more detailed impact analysis on crowdfunding. The result is a good example of evidence-based regulation as well as crowdsourced legislation.CONSOB states that this Regulation is to “enable the development of an initial phase of ‘testing’ of capital raising through online portals, with the main purpose of promoting the development and growth of the country.” In a country where the awareness of crowdfunding is still low, it is essential to consider this regulation as part of testing process for the raising of capital through online portals.
The main new provisions are:
- Individuals
and institutions that wish to run equity crowdfunding operations must
apply to be included in a special register that will list all the equity
crowdfunding portals. A special section will be reserved for existing banks and
financial institutions/intermediaries that inform the CONSOB an interest in
becoming crowdfunding platforms. The register is published online and available
to all.
- In order
to be included in the register, one must meet the integrity and
professionalism requirements set by CONSOB, as normally required for
intermediaries operating in the financial markets (banks, investment firms, and
other intermediaries). Only subjects who can prove fairness in business and
financial dealings and adequate professional skills can in fact ensure the
efficiency and the optimality of the business operations of a crowdfunding
portal. Among the professional requirements, there is the ability of the
platform owner to assess the business plans submitted by the startups, from an
economic and financial point of view, rather than a technological-innovation
one. The CONSOB is required to decide within 60 days of receiving an
application if a platform meets the necessary requirements to be admitted to
the register.
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| Daniela Castrataro, Twintangibles |
- The
operator must provide the so-called retail investors (i.e. non
professional investors) with a set of mandatory information in order for them
to be able to make informed decisions. This means that a crowdfunding portal
must display the risks connected to investment in startups (eg. loss of
capital, illiquidity, rarity of dividends, dilution, diversification);
information and practical instructions about the right of withdrawal; the
periodicity and the methods with which they will be provided with information
on the status of pledged, the amount subscribed and the number of investors;
fees and costs charged to investors; the applicable law and the competent
court; the language or languages in which they are provided with the
information concerning the offer. The retail investor must demonstrate that
they understand the nature of the activity of the portal, the nature and
specificity of the financial instruments issued by innovative start-ups and the
relative risk of each offer.
- Only
innovative startups (currently just over 300) can raise money through
a crowdfunding portal. This is probably the biggest limitation of the Italian
crowdfunding regulation. To qualify as an innovative startup, the company has
to meet the following requirements: the share/quota-holders (individuals and
not entities) shall hold on the date of incorporation and for the following 24
months the majority of quotas/shares and majority of voting rights of the
ordinary share/quota-holders’ meeting; the company has been incorporated and
has been active for a period no longer than 48 months; starting from the second
year of activity, the total value of yearly turnover shall not exceed €5
million; the company does not distribute profits; the company shall not result
from the merger, division or transfer of business from a going concern; and the
exclusive or prevalent business scope of the company is the development and
commercialization of innovative products or services with high technological
value. The Start-Up Regulation also introduces the sub-category of the innovative
start-up with social purposes.
- Each
innovative startup can collect shares up to EUR 5 million.
- 5 percent
of the totality of the shares offered is required to be taken up by
“professional investors”, bank foundations, financial institutions for innovation
and development or innovative startups incubators, before the offer is
published.
- In order
to protect retail investors, there is an obligation for innovative
start-ups to include in their statutes or instruments of incorporation the so
called tag-along right, thus guaranteeing investors a way out should the
controlling shareholders sell their shares to a third party after the offer.
(Source: Twintangibles blog social media at work)
Regulation implementing Article 30 of the Law Decree n. 179/2012 (Decreto Crescita)
