Investments into crowdfunding can breach various securities laws, because soliciting investments from the general public is often illegal, unless the opportunity has been filed with an appropriate security regulatory authority.
These regulators have different ways of determining what is and what is not a security.
Any crowdfunding arrangement in which investors are asked to contribute money in exchange for potential profits based on the work of others would be considered a security.
Considering that a lot of project creators are inexperienced and a lot of investors are often not enough financially educated, these regulations are made primarily in order to protect the people.
Let’s dive into the different approaches to investing crowdfunding.
Argentina
Although it was admitted by the Civil Code, it is not regulated.
The Argentine crowdfunding model will flow through collective financing platforms, which must be in charge of a corporation authorized and registered by the financial institution.
Final purpose of the finance platform has to be to put in contact with the fundraiser and investors, regardless if either a private personal or any legal entity is investing.
It must have a legal structure, statute and corporate purpose, name, registered addresses, shareholder registration, own website and email, among other requirements.
Australia
Australia differences between debt crowdfunding and equity crowdfunding.
Regarding equity crowdfunding, the Corporations and Markets Advisory Committee (CAMAC) proposed a regulatory regime specifically designed to facilitate crowd sourced equity funding (CSEF) in Australia in 2014.
The CAMAC report recommended Australia introduce legislation allowing retail investors to invest up to $10,000 a year in start-ups via equity crowdfunding, with a maximum of $2,500 in each company. It suggested companies be allowed to raise up to $2 million per year on such platforms.
Following this principle, the equity crowdfunding became regulated in 2018, in fact, in the same year, the government provided the first licenses for the platforms.
Hong Kong
An equity crowdfunding platform may need to be licensed under the Securities and Futures Ordinance before it is permitted to connect a business or any services, that would constitute a regulated activity, to the public in Hong Kong.
In addition, the Securities and Futures Commission, Hong Kong’s securities regulator, imposed certain legal restrictions on equity crowdfunding platforms, such as the requirement to provide services only to professional investors.
Israel
Israel has yet to enact legal framework for equity crowdfunding.
Any equity crowdfunding activity is currently regulated under the Israeli Securities Law which permits the offering of securities to 35 non accredited individuals and an unlimited amount of accredited investors as defined in Israel Securities Law.
Italy
In July 2013, Italy became the first country in Europe to implement a complete regulation on equity-crowdfunding, which applies only to innovative startups and establishes.
Singapore
The Monetary Authority of Singapore (MAS) controls equity-based crowdfunding the same way it controls debt-based crowdfunding.
For both cases, the crowdfunding platform must have a Capital Markets Service (CSL) license. If a platform also wishes to offer advice to investors, it needs to acquire a license as a financial advisor.
Switzerland
The Swiss Financial Market Supervisory Authority has not established specific regulations for crowd investing platforms.
Instead, each platform is reviewed on a case-by-case basis to decide whether the platform requires a license to operate.
In general, if the money raised is only brokered via the platform and not centrally pooled in any way, unlicensed providers are acting within the law.
United States
Before June 16, 2015, equity crowdfunding (under Regulation D) was limited to individuals meeting certain net worth and income levels (accredited investors) and was conducted by a licensed broker-dealer.
On May 16, 2016, Title III of the 2012 JOBS Act’s Regulation CF came into effect which allows equity crowdfunding (also referred to as “Regulation Crowdfunding”), regardless of net worth or income.
It must be conducted by a licensed broker-dealer or via a funding portal registered with the SEC.
The bill went through a number of amendments and on April 5, 2012 President Barack Obama signed the JOBS Act into law.
The legislation mandates that funding portals register with the SEC as well as an applicable self-regulatory organization to operate.
Regulation A offerings places limits on the value of securities issuer may offer and individuals can invest through crowdfunding intermediaries.
An issuer may sell up to $1,000,000 of its securities per 12 months, and, depending upon their net worth and income, investors will be permitted to invest up to $100,000 in crowdfunding issues per 12 months.
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