A partnership between the Crowdfunding Hub, European Network of Crowdfunding Professionals and FG lawyers (Dutch boutique law firm with a special focus on alternative finance and fintech), has launched pan-European research to identify the liability risk in respect to the various forms of crowdfunding.
Entitled Crowdfunding Cross Borders, the trio has enlisted the assistance of partners in 11 different European countries to aid in the collection of information across Europe.
According to the group;
“Crowdfunding is here to stay. Its exponential growth (in Europe doubling every year) shows that the market is seriously looking into new financing alternatives. Crowdfunding platforms pop up like daisies and are expanding rapidly. Inherently, the platforms, as well as the investors and the project owners, become confronted with other jurisdictions. Other national laws and regulations, another regulator, but most importantly another (claims) culture.”
But what are the risks? Europe currently lacks a specific European wide crowdfunding regulatory framework – like MiFID and the Prospectus Regulation for investment based crowdfunding – does not make the perfect fit with the innovative initiatives that are being developed. The European Commission published document Building a Capital Markets Union recognizes the challenges – and the benefits. A European regulatory framework for crowdfunding is currently not foreseen for the near future but the partnership believes it is “a matter of time that these regulations will be more harmonized”.
Ronald Kleverlaan, founder of the Crowdfunding Hub says;
“Cross-border investments are important for crowdfunding to become a real alternative for traditional financing. To convince investors to finance companies in other countries, crowdfunding platforms need to become more transparent about the potential risks”.
A European wide private law, let alone European liability law, is not something the group envisages to be implemented in the near future, if at all. In addition to the regulatory regime, crowdfunding actors will be confronted with numerous different sets of national consumer laws and tort laws when structuring their business, fundraising or investments on a cross border basis.
“There are a number of evident developments upcoming in the relatively near future: scaling up of platforms, increase of ticket size and creating a trading venue for this new asset type of ‘crowdfunding investments’. Cross border activity will inherently become more important,” states Anne Hakvoort, a partner at FG Lawyers. “With the absence of a uniform European legal framework, crowdfunding actors in Europe will be confronted with more than one national legal regime. Knowledge sharing is essential for creating awareness of the legal do’s and don’t’s and contributes to the professionalization of the European crowdfunding market.”
The Crowdfunding Crossing Borders research will focus on identifying the main grounds for a liability claim in respect of the different types of crowdfunding (donations, rewards, lending and investment based) in the national European jurisdictions. The research is designed to give an overview of national civil law obligations that the platform and/or the project owner needs to adhere to and, as such, how to mitigate its respective civil law liability risks.
The following questions will be answered;
- Which civil law measures, outside insolvency proceedings, could an investor take against a crowdfunding platform and/or a project owner to hold it liable for damages resulting from investing in a crowdfunding project and
- what are the main takeaways for a crowdfunding platform and/or a project owner to prevent any such liability risks from materializing?
In answering this research question, next to national laws, EU directives and regulations will also be taken into account.
The research shall be performed in 11 countries with the following legal partners: Curia (Belgium), Sorainen (Estonia), Osborne Clarke (France, Germany, Italy, Spain, UK), Castrén & Snellman Attorneys (Finland), Wardyński & Partners (Poland), Hellström Advokatbyrå (Sweden) and FG Lawyers (Netherlands). Results of this research are anticipated in Q1 2016.