Alternative Finance: Crowdfunding in Germany under the “Kleinanlegerschutzgesetz”.
Germany adopted in April 2015 a new law – small investor protection act (Kleinanlegerschutzgesetz) – for tighter financial market regulation, which applies also on every possible business model like crowd funding, crowd lending or crowd investing. The law will become effective in June or July 2015. Only the formal approval of the Bundesrat, federal (second) legislative chamber, is outstanding.
The regulation covers different aspects: The main new requirement is the need of a prospectus, reviewed by BaFin, for these crowd finance instruments (Schwarmfinanzierung), which was not needed before. The advertising for crowd finance instruments will be restricted to make sure that the communication includes adequate warnings about the risks associated to the investment. Also, the distribution of crowd lending products via a subordinated loan or a profit participation loan (partiarische Darlehen) requires a different qualification of the distributor. The distributor has not only to be qualified as a loan broker in accordance to the Trade, Commerce, and Industry Regulation Act (Gewerbeordnung) but also as a financial product broker in general (Finanzanlagenvermittler).
However, there are some exemptions for crowd finance instruments so than no prospectus is needed. The limitations, which have to be observed in order to qualify for a non-prospectus crowd finance instrument, seem to be rather problematic for businesses except very small businesses and start-ups:
The amount of the investment for a retail investor is considerably limited to EUR 1,000. Only if you can show by a self-evaluation test that your personal assets are higher than EUR 100,000 and therefore that this investor can bear the risk of a loss, the amount of the investment for a retail investor is higher but still limited to EUR 10,000.
Companies can raise up to EUR 2.5m via crowd finance instruments without a prospectus.
Despite this limited exemption a standard Investment Information Sheet is needed for every crowd finance instruments but it seems rather to be helpful to get a general standard for such investments. Also this process is not handled in a bureaucratic way. The process can be carried out electronically, which makes investing easier and smoother for all investors.