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Editor's Note: Alessandro Lerro, a lawyer, writes in to explain how the recently-passed Italian crowdfunding laws protect investors.
The broad protections offered to investors in the Italian equity crowdfunding law show Italian legislators’ main interest in the new regulation. It could be a useful example for other countries considering national crowdfunding rules around the world.
Indeed, investors’ protection is perhaps excessive, but equity crowdfunding is a risky business, and this legal framework is acceptable enough for all the industry stakeholders.
The 2012 equity crowdfunding law, recently implemented by CONSOB (essentially the Italian Security and Exchange Commission) Regulation N. 18592, offers a complete framework applicable to any crowdfunder, regardless of his or her nationality, domicile or place of business, provided that the crowdfunder is investing through an equity crowdfunding platform based in Italy.
Also, the target company may have varied origins: for example, we can have an English company incorporating a startup in Italy and offering its equity on the web; crowdfunding may be open through a Canadian platform based in Italy; crowdfunders might come from the U.S., China, Australia, Brazil or wherever in the world. Every crowdfunder enjoys the same protection regardless of his or her nationality.
The equity crowdfunding law aims to grant investors the maximum protection available through a number of rules and principles, among which:
Beside those general rules, equity crowdfunding is based on the principle that any investment offered ought to be finalized through a CONSOB-registered broker-dealer, to comply with the E.U. Markets in Financial Instruments Directive (MIFID), provided that the subscriber’s investment profile matches his proclivity to risk investments.
While the JOBS Act gives an investment cap, the Italian law sets no personal investment limit for investors. Nevertheless, for small investments (up to 500€ per investment and €1000 per year, for individuals; ten times these amounts for companies) a simplified process is provided:
Investors shall also fill out some questionnaires giving evidence that they understand the risks of equity investments and that their personal estate will be not compromised.
Moreover, investors are granted a set of rights to exit the investment in the following cases:
Should a withdrawal right be exercised, the crowdfunding platform ought to promptly reimburse the investment, though the platform is not a party to the investment contract. It is one of several services that crowdfunding platform could start offering thanks to the equity crowdfunding law.
Interestingly, transaction costs (i.e. credit card commissions, wire costs, etc.), that could have a notable impact on platforms’ accounts, are subject to different regulations:
Investors’ protection might appear excessive, but the parties involved, including target companies and platforms, require a clear set of rules. Indeed, the initial equity crowdfunding experiences demonstrate that the lack of regulation does not make crowdfunding easier.
A well-regulated system can be a big advantage in developing an equity crowdfunding culture, building trust, and approaching the balance of the interests involved.
Alessandro M. Lerro is an Italian lawyer, dealing with new technologies, venture capital, M&A and crowdfunding. He is a regular author, blogger and speaker in workshops and seminars. You can find him on Twitter @alessandrolerro; for more on crowdfunding laws in Italy, check out www.lerro.it.