The German Federal parliament votes on Thursday on the swarm financing accompanying law. In the future, information and disclosure obligations for an investment information sheet are to be stipulated.
Responsible members of management bodies of issuers are to be liable from now on already for simple negligence if given information is misleading or incorrect. Important information for investors must also be included. The law implements a corresponding EU regulation.
Read more about the new law accompanying swarm financing in Germany and find the latest business news in the world with our companion app, Born2Invest.
What does the Crowdfunding Association says about the new rules
In the opinion of the Crowdfunding Association, however, the coalition of CDU/CSU and SPD has overshot the mark. Liability rules have been unnecessarily tightened, turning the project into a “crowdfunding prevention law.”
Crowdfunding or swarm financing is used to collect capital from many small investors via Internet platforms. This money is usually lent as loans to start-ups or SMEs, or used for real estate projects, for example. From the perspective of the German government, crowdfunding offers an alternative to and complements conventional sources of financing for various industries and companies.
“The new liability regime will ensure that managing directors, employees, and supervisory board members are liable for crowdfunding with their personal assets,” said Uli Fricke, vice chairwoman of the German Crowdfunding Association, describing the consequences. In this respect, the proposal deviates significantly from the liability regime in other areas. In the case of issues of securities with and without a prospectus, for example, the issuer would only be liable in the event of gross negligence.
Konstantin Fabricius, managing director of the Association of German Credit Platforms, expects noticeable consequences. “We have great doubts about the interest of responsible bodies, such as a startup, in a crowdfunding service if they were to become aware of personal liability.”
Union politician defends regulation
In contrast, CDU finance politician Carsten Brodesser defends the implementation of the EU regulation. “After all, with the law, we also want to protect investors to the extent that they can basically rely on the information in the basic investment information sheet,” said Brodesser. “In the event of incorrect information, they should also be able to take recourse against those responsible.”
According to the Crowdfunding Association, this argument misses the point, because, under the EU regulation, the platforms are liable for ensuring that the information is comprehensible, complete, and correct.
No one can yet estimate how the changes in the law will affect crowdfunding. So far, crowdfunding has been a success story in Germany, even if investments declined for the first time last year due to the Corona pandemic – from $607 million (€496 million) in 2019 to $505 million (€412 million).
So far, the Crowdfunding Association assumes that this is only a temporary phenomenon. In the first quarter of 2021, the level of 2019 was already reached again with a financing volume of $122.5 million (€100 million).
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First published in Handelsblatt, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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