• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Crowdfunding France - Proposal for Crowdfunding Amendments to the Prospectus Directive
 

Crowdfunding France - Proposal for Crowdfunding Amendments to the Prospectus Directive

on

  • 915 views

 

Statistics

Views

Total Views
915
Views on SlideShare
913
Embed Views
2

Actions

Likes
1
Downloads
19
Comments
0

1 Embed 2

http://minilogs.com 2

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Crowdfunding France - Proposal for Crowdfunding Amendments to the Prospectus Directive Crowdfunding France - Proposal for Crowdfunding Amendments to the Prospectus Directive Document Transcript

    • Proposal for Crowdfunding Amendments to the Prospectus DirectiveIntroductionIn the recent years, traditional finance has faced the challenge of adapting its model as aconsequence of the recent crisis. This adaptation has left many actors in the economy, like the SMEs,in desperate need of an alternate supply of financing.Simultaneously, the Internet has allowed the creation of new models like crowdfunding (thefinancing of projects by a multitude of investors engaging small amounts) that can offer new answersto meet these needs.The purpose of this document is to propose amendments to the existing Prospectus Directive, inorder to let these new tools operate in an adequate legal environment.History of the Prospectus DirectivePurpose of the DirectiveThe PD aims to improve market efficiency through the issue of a single approved prospectus that willenable issuers to raise capital across the EU without further approval (the Passport). The aim of thePassport is to:- provide cost-effective capital raising for issuers- enhance investor protection by requiring harmonised high standards of disclosure for issues ofsecurities that are offered to the public or admitted to trading on a regulated marketThe PD is regarded as a key part of the EU Financial Services Action PlanSource http://www.fsa.gov.uk/pages/about/what/international/pdf/pd.pdfPart of the “Lamfalussy Directives” (with the MiFID, the Market Abuse and the TransparencyDirectives), the Prospectus Directive’s main purpose is to define a common and adequate definitionof the information that issuers (e.g. SMEs) should provide and investors can rely on when deciding tomake an investment decision. This definition should balance the need of investors of receivingenough information to make the decision, and the cost of producing this information for the issuer.The role of the Directive is also to agree on a common standard for all the member states so thatoffers (public or private) are treated consistently across the EU and allows cross border offeringwithout any discrepancy in the conditions applied by each member state. 2012 Crowfunding France - Ver-2012-11-07- licence CC-BY-NC-ND
    • ExemptionsCurrent exemptions:Within the Article 3 of the Prospectus Directive, subsection 2 defines the conditions that exempt anissuer from providing standardised information as specified by a prospectus:2. The obligation to publish a prospectus shall not apply to the following types of offer:(a) an offer of securities addressed solely to qualified investors; and/or(b) an offer of securities addressed to fewer than 100 natural or legal persons per Member State(amended to 150), other than qualified investors; and/or(c) an offer of securities addressed to investors who acquire securities for a total consideration of atleast EUR 50 000 (amended to EUR 100 000) per investor, for each separate offer; and/or(d) an offer of securities whose denomination per unit amounts to at least EUR 50 000 (amended toEUR 100 000); and/or(e) an offer of securities with a total consideration of less than EUR 100 000, which limit shall becalculated over a period of 12 months.Purpose of exemptions in the original Directive 2003/71/ECBased on the nature of investors, and/or their number, and/or their capacity to invest importantconsiderations, and/or the total consideration of the offer, the Directive has defined conditions thatdo not require standardised protection of investors and where offers can be done without the cost ofproducing a prospectus.The intent of the exemptions is thus to provide a common view for the securities offers that - for areason of efficiency or absence of necessity to protect investors - should not be subject to theconstraints of publishing a prospectus and can be conducted at arm’s length between investors andissuers.Purpose of amendments in the amending Directive 2010/73/ECRevised in 2010, the original text of the Directive 2003/73/EC has seen 3 amendments concerningthe perimeter where exemptions apply.Amendment to exemption (a)No real rationale has been provided for the increase from 100 natural or legal persons per MemberState to 150. While this seems common sense - and actually falls short of the implication in thechange of usages with the Internet, there is no mention in the Directive 2010/73/EU of the reasonsthat drove the amendment.Amendment to exemption (c) and (d)The threshold of EUR 50 000 in Article 3(2)(c) and (d) of Directive 2003/71/EC no longer reflects thedistinction between retail investor and professional investors in terms of investor capacity, since itappear that even retail investor have recently made investments of more than EUR 50 000 in a singletransaction.Source http://www.hm-treasury.gov.uk/d/prospectus_directive_amending.pdfThe rationale of this amendment is rather confusing: The legislator states that capacity to investimportant considerations has not proved to be a pertinent yardstick to discriminate investors thatwould need information for their own protection, and those that are sufficiently informed to makedecisions without a prospectus. Raising the threshold does not seem to address the problem that the 2012 Crowfunding France - Ver-2012-11-07- licence CC-BY-NC-ND
    • legislator apparently wants to address: Protect retail investors from taking risks they cannot properlyevaluate. Why risking more important sums would offer a solution?Amendments provide a conflicting view of legislator’s intentThe amendments to the Exemptions’ subsection provide actually a conflicting view. Amendment tothe exemption (a) is offering an extension of the perimeter where retail investors can subscribe toprivate offers. On the contrary, exemptions (c) and (d) impose restrictions where retail investors canparticipate to such offers. We clearly miss a guiding principle that would have driven a coherentrevision of the Directive with the aim of achieving a social or economic goal: like boostingemployment by easing financing in SMEs.The JOBS ActPurpose of the US Crowdfund ActPresident Obama signed on April 5th, 2012 the JOBS Act (Jumpstart Our Business Startups) whosepurpose is to boost employment in the United States by freeing financing for SMEs and startups fromseveral of the legal constraints that built up over the years, and who were adopted to protectinvestors from wrong doings by big companies, like Enron for example. These regulations possiblymet their target when applied to big corporations, but they imposed an unnecessary toll for SMEsand growth companies, compromising their survival in many cases. The JOBS Act was a very extentmodification of the securities laws that covered several stages of development of SMEs, from seedingto pre-IPO.In particular, the JOBS Act has been very innovative by introducing a part referenced as theCrowdfund Act, which created a new form of exemption based on the limited consideration eachinvestor is engaging:SEC. 302. CROWDFUNDING EXEMPTION. (a) Securities Act of 1933- Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is amended byadding at the end the following: ‘(6) transactions involving the offer or sale of securities by an issuer (including all entitiescontrolled by or under common control with the issuer), provided that-- ‘(A) the aggregate amount sold to all investors by the issuer, including any amount sold inreliance on the exemption provided under this paragraph during the 12-month period preceding thedate of such transaction, is not more than $1,000,000; ‘(B) the aggregate amount sold to any investor by an issuer, including any amount sold inreliance on the exemption provided under this paragraph during the 12-month period preceding thedate of such transaction, does not exceed— 2012 Crowfunding France - Ver-2012-11-07- licence CC-BY-NC-ND
    • ‘(i) the greater of $2,000 or 5 percent of the annual income or net worth of such investor,as applicable, if either the annual income or the net worth of the investor is less than $100,000; and(continued)Source http://www.govtrack.us/congress/bills/112/hr3606/textInnovations of the Crowdfund ActExemption based on the limited amount for investorsThe Crowdfund Act is introducing a real innovation in securities law: it is building new regulationbased on the notion that risk for an investor should not be evaluated on its sole nature, but also onthe maximum impact for the investor. It reflects the common sense notion that a potentially riskyinvestment on a small consideration can have less adverse impact for the investor’s well-being thanan investment considered less risky on an unlimited consideration.Creation of a new status of “funding portal” corresponding to the development of theInternetThe Crowdfund Act also introduced a specific status of “funding portal”, acknowledging thatcrowdfunding investment will be mainly conducted through, and tanks to, the Internet; creating anew role, distinct from the one of the usual security broker: SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.‘(a) Requirements on Intermediaries- A person acting as an intermediary in a transaction involving theoffer or sale of securities for the account of others pursuant to section 4(6) shall-- ‘(1) register with the Commission as-- ‘(A) a broker; or ‘(B) a funding portal (as defined in section 3(a)(80) of the Securities Exchange Act of 1934);(continued)Source http://www.govtrack.us/congress/bills/112/hr3606/textThe real novelty here is that it introduces the notion that security transactions, conducted on theInternet for small considerations, shall be regulated with a separate set of regulations to the oneapplying to all-purpose security brokers. It recognizes the fact that standard regulations applying tobrokers, make them competent in conducting transactions, but that the approach “he who can dothe most can do the least” is ill-adapted in offering efficient and fluid intermediaries for conductingsmall transactions over the Internet.ProposalAdapt exemptions to answer the financing needs of our SMEsSMEs are facing many difficulties in obtaining financing, especially at the beginning of their activity,when they most need it. Financial crisis and consequent stronger requirements on the bankingsystem through the Basel III regulation has created a retreat from banking financing for manycategories of SMES.Modifying exemptions to the Prospectus Directive, with a clear political agenda, offers a way to openup direct financing from individual investors to our industrial and service economic fabric. It offers 2012 Crowfunding France - Ver-2012-11-07- licence CC-BY-NC-ND
    • the possibility to supply the necessary funds to support the creation of jobs in the part of theeconomy which has always been its main source.Raising threshold in exemption (e) from €100K to €1M to address the“funding gap” facing SMEsModificationWe propose to modify exemption (e) as follows:(e) an offer of securities with a total consideration of less than EUR 100 000 [1 million], which limitshall be calculated over a period of 12 months.PurposeThe current €100K threshold has proved to be too limitative and does not correspond to the realityfacing growth companies in Europe at the beginning of their development. Financing needs in capitalin the range of €500,000 to €1.5 million sit in-between bank and VC financing. Raising the thresholdto €1 million will allow individual investors to freely mutualize their investment capacities throughbusiness angels clubs or crowdfunding platforms, in order to obtain the level of investment necessaryfor the growth stage of our SMEs.Modify exemption (b) to adapt to the Internet and SMEs’ newcommunication environmentModificationWe propose to modify exemption (b) as follows:(b) an offer of securities addressed to fewer than 150 [1 000] natural or legal persons per MemberState, other than qualified investors;PurposeThe number of individual receiving an offer is no longer a stable criterion in a world where theInternet means potential instant access to information for everyone. The number of 150 proves to bea too stringent limit that potentially can endanger any offer initially targeted at a restricted circle ofinvestors to be reclassified as a public offer during the course of the fund raising process.Replacing the antiquated notion of protecting investors by preventing them from receiving financialinformation will free business angel clubs and crowdfunding platforms from unnecessary and costlycontortions in their communication, at a time where any word can potentially reach the whole planetin a matter of seconds.Creation of exemption (f) to allow crowdfunding for SMEsWith the rise of the use of the Internet, a new way to transact between an issuer and a multitude ofcooperating investors has been made possible, while each investor can be participating through avery small amount.Addition to the list of exemptionsWe propose to create an exemption (f) as follows:(f) An offer of securities addressed to investors who cannot acquire more than a total consideration ofEUR 2 000 per investor, for each separate offer. 2012 Crowfunding France - Ver-2012-11-07- licence CC-BY-NC-ND
    • PurposeThis exemption would build on the novel notions introduced in the Crowdfund section in the JOBSAct: That risk should no longer be assessed by its intrinsic nature, but by the absolute impact it canhave on an investor.It will allow letting the general public recreate a financial relationship with the ecosystem of ourSMEs, through direct and transparent investments, while being protected by the limited amount thateach investor could put on each project.About Crowdfunding FranceCrowdfunding France (a.k.a. Financement Participatif France in French) is the French professionalassociation representing and defending the interests of all forms of crowdfunding (donations, loansand equities) in France:  official web site is accessible at http://www.crowdfundingfrance.org 2012 Crowfunding France - Ver-2012-11-07- licence CC-BY-NC-ND
    • ContentIntroduction ............................................................................................................................................................ 1History of the Prospectus Directive ........................................................................................................................ 1 Purpose of the Directive ..................................................................................................................................... 1 Exemptions ......................................................................................................................................................... 2 Current exemptions: ...................................................................................................................................... 2 Purpose of exemptions in the original Directive 2003/71/EC ........................................................................ 2 Purpose of amendments in the amending Directive 2010/73/EC ................................................................. 2The JOBS Act ........................................................................................................................................................... 3 Purpose of the US Crowdfund Act ...................................................................................................................... 3 Innovations of the Crowdfund Act ...................................................................................................................... 4 Exemption based on the limited amount for investors .................................................................................. 4 Creation of a new status of “funding portal” corresponding to the development of the Internet ............... 4Proposal .................................................................................................................................................................. 4 Adapt exemptions to answer the financing needs of our SMEs ......................................................................... 4 Raising threshold in exemption (e) from €100K to €1M to address the “funding gap” facing SMEs ................. 5 Modification ................................................................................................................................................... 5 Purpose .......................................................................................................................................................... 5 Modify exemption (b) to adapt to the Internet and SMEs’ new communication environment......................... 5 Modification ................................................................................................................................................... 5 Purpose .......................................................................................................................................................... 5 Creation of exemption (f) to allow crowdfunding for SMEs ............................................................................... 5 Addition to the list of exemptions .................................................................................................................. 5 Purpose .......................................................................................................................................................... 6About Crowdfunding France ................................................................................................................................... 6 2012 Crowfunding France - Ver-2012-11-07- licence CC-BY-NC-ND