Germany: Lawmakers Must Strengthen Market for Investment Crowdfunding

Jamal El Mallouki, CrowdDesk CEO and current Chair of the German Crowdfunding Association (Bundesverband Crowdfunding), wants to boost the German crowdfunding market and affiliated regulatory framework. To improve the crowdfunding ecosystem, El Mallouki and the Association have published three concrete proposals for policymakers to pursue.

In the European Union, it has long been accepted that crowdfunding is an important addition in the sector of the capital markets. It is the EU’s intent to facilitate access for businesses to this alternative form of financing significantly.

El Mallouki says a similar initiative makes sense for Germany. He recently explained this as an invited expert on crowdfunding models at the Finance Committee of the Bundestag during the hearing on the Small Investor Protection Act:

“We are in favor of establishing a unified regulatory framework in the field of crowdfunding and to strengthen the market place further.”

Specifically, El Mallouki advocated on behalf of the following policy initiatives:

  • Investment crowdfunding should be increased to €5 million. Up to that amount should remain without a prospectus financing projects. Currently, the limit is €2.5 million.
  • Limiting crowdfunding to so-called shareholder loan must be omitted. Including, “other forms of financing, would be a win-win situation. On one hand, projects could be individually placed. On the other hand, such an extension would be beneficial in terms of investor transparency, “said El Mallouki.
  • The German Crowdfunding Association calls for a removal of the limit of €10,000 per investor and project. “By international standards, this is much too low and unusual,” said El Mallouki. Instead, the Association believes individual limits should be relative to the potential of the investor.

These recommendations are based on the upcoming EU Prospectus law amendment and would, according to El Mallouki lead to a strengthening of the German market for crowdfunding and consequently improve the overall economy.

Concerns by consumer advocates and critics at the hearing into the ‘alleged high risk crowdfunding is a misunderstanding. The Federal government highly itself stated during a hearing of the Green Group in the Bundestag that;

“No findings on specific grievances on the part of the [crowdfunding] portal operators or companies in crowdfunding ” were apparent.

Furthermore, crowdfunded start-ups haver a significantly higher probability of survival compared to other emerging companies in Germany. In other words, crowdfunded start-up companies are much more successful than the average startup. This, of course, benefits investors.

Against this background, it is obvious that the evaluation of the Small Investor Protection Act should be used to extend the exemption provisions for crowdfunding to all investments and securities.

“This can create a uniform regulatory framework and the market growth will not be artificially inhibited,” says Jamal El Mallouki.

Related: German Crowdfunding Association Sets Reporting Standards Above & Beyond Legal Requirements

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