The Regulation of Crowdinvesting under the Greek Securities Laws
The financial crisis in Greece has vastly affected the Greek banking system, and hence, the financing opportunities of domestic entrepreneurs and companies. Against this background, on 1 September 2016, the Greek Parliament enacted the 4416/2016 law, which, for the first time, sets a regulatory framework for the public offering of securities through a crowdfunding platform (investment-based crowdfunding).
The main objective of this new regulation, following the paradigms of other EU countries, is to strike a balance between two different and conflicting interests: on the one hand, the urgent need for Greek startups and SMEs to access new funding tools which would allow them to develop in the midst of a depressed economic environment, and, on the other hand, the maintenance of an adequate level of protection for investors.
In my recent article, ‘The regulation of crowdinvesting under the Greek Securities Laws’ I provide an in-depth legal analysis of the main provisions of the newly passed regulation on crowdinvesting. This regulation, in contrast with other similar legal initiatives in other jurisdictions which took place years after the emergence of the relevant market, did not come to regulate a well-established crowdinvesting market. Instead, it created the legal framework which would potentially form the conditions for the emergence and growth of such a market. As such, it is almost certain that some deficiencies and inconsistencies would occur, which are also critically analyzed in my paper. In this context, the new legislation is compared to practices followed in other countries with developed crowdfunding markets, and some modifications are suggested. Finally, the problem of the information asymmetry between issuers and investors is discussed and the need for a solid investor protection is highlighted.
In order to strike the aforementioned balance, on the one side of the new regulation there is the provision of an exemption from the information sheet (which is the substitute of the Prospectus for public offerings between €100,000 and €5 million) requirement for the offering of investments through an electronic platform. It should be noted that the term ‘investment’ is widely interpreted by the Greek legislator, including transferable securities and money-market instruments as described in Article 4(14) and (15) of MiFID. On the other side, there is the provision of other measures, aiming at the protection of investors, especially smaller ones.
More specifically, the following cumulative conditions must be satisfied in order for the exemption from the obligation to issue an information sheet to apply:
- the transferable securities must be offered exclusively through the Internet, via an electronic system, in the form of a platform;
- the aggregate value of the transferable securities offered by a single issuer in a 12-month-period must not exceed €500,000; and
- retail investors who wish to invest through a crowdinvesting portal must stay within certain subscription limits.
With regard to portal authorization the Greek legislator chose the model of MiFID. In particular, in order for a portal to be authorized as a platform competent to offer transferable securities it should already operate under the veil of an Investment Services Firm, an Alternative Investment Fund Manager (‘AIFM’), or a credit institution. The activities undertaken by these platforms should at least consist in the reception and transmission of orders. Consequently, minimum capital requirements and other obligations apply to these platforms, but at the same time they can benefit from a passport to carry out these regulated services inside and outside Greece, thus enhancing cross-border transactions.
Moreover, the limits for issuers, above which an information sheet must be published, apply irrespective of whether the securities are offered to retail investors, professional investors, or both. However, for the sake of retail investors’ protection, the law provides for two kinds of subscription limits: a single issuer limit, which is the amount that a retail investor may invest in the same issuer; and a single platform limit, which is the amount that an investor may invest in the same crowdfunding platform. In the first case, the investor can invest up to a maximum of €5,000 per issuer, and in any case no more than 10% of his average income over the last three years. In the second case, legislation provides that, irrespective of the investor’s income, the amount that can be invested at the same platform may not exceed €30,000.
Finally, in order to decrease the risks arising from the exemptions of the information sheet requirements, the new law provides for certain disclosure obligations. These disclosures, provided by the crowdfunding platforms to the potential investors, should include information regarding the issuer, the investment, and any possible connection between the crowdfunding platform and the issuer.
In any event, without a tangible experience on the operation of crowdinvesting market in Greece, only assumptions on a theoretical basis can be made. Therefore, patience and observation of the functionality of this new financing tool are warranted. At the same time, an open channel between market participants and the legislator must be maintained, in order to ensure that any necessary legal adjustments, aiming at improving the function of the market, are made in a timely manner.
Konstantinos Serdaris is a PhD Candidate at the National & Kapodistrian University of Athens, Law School.