The Finnish Financial authority recently issued a new set of rules for Equity Crowdfunding platforms which may mean trouble for a lot of them. At a time when Spanish and German crowdfunding laws are at their final stage of negotiation, we rushed to know more about a set of measures that have met harsh criticism from Finnish platforms and that may point to a certain pattern across European regulatory bodies.
In a rather surprising move, the FIN-FSA has issued a regulation which would classify all equity crowdfunding platforms as broker-dealers, forcing them to apply for an investment firm-type permit. This comes with very strict requirements that a lot of platforms may find hard to meet.
Lasse Mäkelä, CEO and founder of Invesdor and one of the earliest proponents of Equity Crowdfunding in Scandinavia, sat down with us to explain what’s happened, what the consequences are and what’s next for crowdfunding in Finland.
So… what happened? What’s this new regulation about?
“If an investor clicks on your website, then the website delivers the information to the company: according to FIN-FSA, that’s brokering. While we are happy that the FIN-FSA is taking action to create common playing rules, this is a considerable change to what they had been saying before. The ministries of Finance and Economic Development have really been pro-CF, they want it to expand and do well, but now the FIN-FSA decided to proceed with this rather strict regulation anyway.”
What can be done about it?
“What the Finance ministry can do is to create new laws, which will then be the guidelines for the Financial authority. The situation is like that: all equity CF platforms have received a letter from the Financial Authority demanding a reply to their questions by august 15th. All players now have to declare their intentions and the FIN-FSA will then decide whether they are allowed to register and continue to operate”
Wow. So realistically what’s going to happen?
“We are in a good position to apply for the license, if finally needed. We keep on working with the two ministries who are pro-crowdfunding towards drafting a new law, but that takes a long time. At the moment, worst case scenario is everybody has to apply for the license. Invesdor is in a good position to do it, but it may be bad for the market. Capitalization is required and we are well covered with these requirements. These capital requirements may be out of reach for some players. We also have an advantage of partnering with a broker-dealer, since we have 3 owners who have licenses, but that’s not the case for most platforms”
Invesdor, much like equity platforms all across Europe, has been operating without a specific crowdfunding law for a long time. Do you think a regulation is necessary?
“A certain level of playing rules has to be determined, what can and cannot be done. We are telling the Financial Authority that we are not doing active selling. However, if there were players behaving Wolf of Wall Street style, pushing sales, these kinds of players would naturally have to be picked out of the game. But the full blown brokering license is too heavy, it brings the crowdfunding players back to the investment banking scene, where smaller companies suffer, because the fees would be so high.”
In Spain, UK or France the regulators are citing investor protection to limit how much they can invest. Do you think that’s necessary?
“That’s a philosophical question. Should people be protected from investing, when they can go out and spend any amount of money in nice clothes, or other purchases, which are soon worthless? In our opinion, platforms should not be doing active selling, so people have all information and should be able to take their own decisions, and should not have limitations. Playing rules for crowdfunding platforms, maybe at a European level, would suffice.”
Anything to say about a European crowdfunding regulation?
“Clearly the European as well as the local regulatory bodies are still for the most part living in the old world. Laws are not taking into account that the Internet exists and there are no boundaries anymore. All rules should take into account the existence of the Internet and their effect to the national limitations.”