Issuers of transferable securities with an aggregate consideration of not more than 5 million euros over a 12-month period may issue securities under the European Crowdfunding Service Provider Regulation (ECSP) using a publicly accessible, internet-based electronic information system operated or managed by a crowdfunding service provider (crowdfunding platform). Tokenized financial instruments, if they qualify as securities, may also be issued through a crowdfunding platform. Securitization in the form of a certificate, which ensures the marketability of financial instruments in the case of traditional securities, is not required for the classification of a token as a security. For a financial instrument to be classified as a security, it only needs to be transferable, tradable on the financial market and be associated with rights similar to securities. In its scope of application, the ECSP Regulation takes precedence over the provisions of the German Securities Prospectus Act (WpPG), which is why a securities information sheet (WIB) or securities prospectus does not have to be prepared for a public offering of securities made via a swarm financing platform.
Investment Information Document According to ECSP Regulation Required for Issuance via Crowdfunding Platform
The primary obligation of an issuer when issuing securities via a crowdfunding platform is to prepare an investment information document. This must be provided on a separate, permanent data carrier that is clearly distinguishable from marketing communications. In addition, it must not exceed six pages in DIN A4 format in printed form. Approval by BaFin is not required. The ECSP Regulation imposes an obligation on the swarm finance service provider to establish and apply adequate procedures to verify the completeness, accuracy and clarity of the information contained in the basic investment information document. If the crowdfunding service provider also offers its services in member states other than Germany, securities may be offered on the basis of the investment information document in all member states of the EU. The prerequisite for this is that the basic investment information document is made available to investors in the official language of the respective Member State or in a language accepted by the competent authorities of that Member State.
Issuer’s Liability for Basic Investment Information Document to be Limited
According to the current liability regime of the German Securities Trading Act (WpHG), the issuer and the members of its management bodies responsible for the basic investment information document are liable for misleading or inaccurate information in the basic investment information document or for important information that is not provided but is necessary to support investors in their decision whether to invest in a crowdfunding project. Under current law, even simple negligence is sufficient. Anyone who fails to exercise due care in the preparation of the basic investment information document and its contents is deemed to have acted negligently. However, the recently published draft bill on the Future Financing Act of the Federal Ministry of Finance now provides for the standard of liability to be raised to gross negligence. It is also envisaged that the direct liability of management bodies for a basic investment information document will be removed from the WpHG. Essentially, only the issuer itself would then be liable for incorrect or missing investment information documents. This should make the possibility of crowdfunding much more attractive for providers of investment products in the future.
Attorney Dr. Konrad Uhink