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Crowdfunding with 27+ regulators J u n e 7 t h , B r u s s e l s K r i s t o f D e B u y s e r e

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Three legal barriers1.Promotion restrictions are not designed with the internet in mind2.Private or closely held company regimes may hinder new shareholders to underwrite3.Financial services regulations may put platform operators in legal uncertainty

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Promotion restrictions Prospectus required, €5m Prospectus Directive (€2.5m until end of June ’12) Member states may choose their own regime. Thus: cross-border promotions may be costly €100 000 Member states may not impose a prospectus €0NB 1: member states may also not impose a country-specific prospectus regime, even not in the zonebetween €100 000 and €5m, if only 150 persons per member state are addressed, if only qualifiedinvestors are addressed, or if tickets of minimum €100 000 are promoted.NB 2: platforms that promote stakes in an intermediate platform entity, instead of the finalinvestee (often to reduce administrative barriers), will very quickly reach the €100 000 threshold.

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Promotion restrictionsPossibilities for the internet age: Use exemptions that are based on an investment cap per investor (instead of exemptions that are based on the number or type of investors, or the total amount of the offering)? And/or offer a harmonized country- preempted regime below €5m (instead of almost 30 country-specific regimes, or a prohibitively expensive €5m+ regime)

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Restrictions in company lawsMost startups opt for a “cheap” corporate regime: aprivate or closely held company regime, instead of apublic company regimeThese “cheap” regimes contain restrictions ontransfering shares, or accepting new shareholders:good for family owned businesses, bad forentrepreneurial growth companiesCompany regimes are country-specific: informationcosts and advisory costs remain high, both forinvestors and entrepreneurs

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Restrictions in company lawsPossibilities? Offer a company regime to entrepreneurial firms, that is cost-effective and open to accepting new shareholders (thus merging features of private & public company regimes), and which has a mechanism to issue shares that would fit the information age. Implement the regime Europe-wide, to reduce information costs, to prevent regulatory capture from national organizations or advisors, and to offer cross- border investors a regime that they understand and already know from their home state.

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Restrictions frominvestment servicesA problem of platformsThe source of the problem: a combination ofuncertainty about interpretation, and a lack ofexemptions in the rules, allows regulators topotentially place platforms in heavily regulatedregimes. This is a substantial risk for platforms.

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Restrictions from investment servicesExample & recommendation According to Directive 2006/48/EC, you must be licensed as a credit institution to be able to accept reclaimable funds from the public. So, what about platforms that allow their investors to reclaim their money, after a failed campaign? Recommendation: create legal certainty, by way of an exemption, that the platforms that care most about their investors, don’t risk the hardest regime

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Restrictions from investment servicesExample & recommendation According to Directive 2006/48/EC and 2009/110/EC, you must be licensed as a credit institution to be able to electronically store monetary value that can be used for payment transactions. So, what about platforms that display the amount of funds that an investor has in his virtual account, and that he can allocate to campaigns from investees? Recommendation: create legal certainty (exemption)

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Restrictions from investment servicesExample & recommendation When the AFIM Directive will be implemented (22 July 2013), member states need a minimal regime for sub-€100m non-UCITS collective investment undertakings. Some member states already have/had such a regime. So what about platforms that act as an investment pool between companies & investors? Recommendation: create legal certainty (exemption + passport) that investment pool based platforms will be able to operate and promote Europe-wide, like the proposal for AFIM-exempted venture capital funds

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Restrictions from investment servicesThe MiFID Directive is however the worst one: According to the MiFID Directive, a number of activities are regulated: placing of financial instruments, executions of orders on behalf of clients, reception and transmission of orders in relations to one or more financial instruments, services related to underwriting, operating a multilateral trading facility (and in the future potentially also an organized trading facility).

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Restrictions from investment servicesThe MiFID Directive is however the worst one: It is too costly for a platform operator with cross-border intentions, to interact with all regulators, to solicit their interpretations of those MiFID regulated activities. Even if a platform operator would opt for the option to go for a MiFID passport, then the problem of client classification and obligations towards clients under MiFID (still) exists: complying with that, makes the platform substantially less appealing for users

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Restrictions from investment servicesThus, offer legal certainty, by way of exemptions,that allow platforms to operate within certainboundaries, without facing awkward side-effects.If no Europe-wide certainties and exemptions arecreated, then the current trend will continue whereplatforms come up with a wide variety of differenttransaction models, to comply with theadministrative barriers and interpretations in onecountry. This is trend is very investor unfriendly.