The Kleinanlegerschutzgesetz (Small Investor Protection Act), the law regulating crowdfunding in Germany went into force on the 10th of July 2015. A year after, the German Crowdfunding Association takes stock of its positive impact on the German crowdinvesting market and points to strong needs for improvement.
As the name of the law reflects, the legislator’s intention when publishing this law was to better protect investors from dubious offerings of securities after several bankruptcies occurred in the grey capital market. This goal was achieved:
“The Small Investor Protection Act has created more transparency in the grey market and strengthened consumer protection”, said Jamal El Mallouki, Chairman of the Board of the German Crowdfunding Association.
However, beyond this overall positive evaluation, the law also presents important weaknesses which limit the further development of the crowdfunding sector. Its practical implementation has proven it to be too restrictive. El Mallouki adds:
“The legal limitation of the crowdinvesting exemption [from publishing a prospectus] to financial instruments such as shareholder loans and subordinated loans does not make sense in the long term. Many platforms want to allow their investors to have access to other mezzanine and equity instruments without incurring higher costs. This should be revised as soon as possible”
In the same vein, the Association regards the ceiling of €10,000 imposed on crowdinvesting as a critical issue. “This is not in the interest of small investors. ”
“We want that investors with larger disposable income be able to freely use crowdfunding platforms in Germany, as they can already do in other countries.”
Despite these limitations, the crowdinvesting market in Germany continues its healthy growth. The new legal framework has triggered a phase of consolidation and many smaller platforms have folded. At the same time, however, many new platforms, especially in the energy and real estate sectors, have entered the market.
Current figures on the development of the German Crowdfunding sector will be released this September in a study published by the Cambridge Centre for Alternative Finance at the University of Cambridge.
Therese Torris is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She has covered crowdfunding and P2P lending since the early days when Zopa was created in the United Kingdom. She was a director of research and consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French personal finance blog, Le Blog Finance Pratique.