On the 13th July 2018, the Malta Financial Services Authority (MFSA) published a set of requirements (the ‘Requirements’) which will need to be complied with by applicants for a licence to provide Investment-based Crowdfunding services under the Investment Services Act.
The use of crowdfunding platforms globally has increased considerably over the course of the past years and months such that crowdfunding has come to be widely endorsed as an effective and efficient medium that creates opportunities for connecting investors and businesses seeking to finance their businesses and projects, and also facilitating the provision of platform-based intermediation services.
the Requirements aim to provide adequate incentives for investment whilst properly safeguarding investors’ interests
The MFSA Requirements essentially serve to outline the manner in which investment-based crowdfunding services may be authorised and regulated under the Investment Services Act, and are expressly intended to be supplemental to existing investment services rules and regulations insofar as they apply in conjunction with, inter alia, the MFSA Investment Services Rules, the Conduct of Business Rules, together with any other relevant Regulations issued under the Investment Services Act.
The Requirements are rooted in the applicable legislative frameworks, including MiFID, and also based on industry feedback received by the MFSA in the context of the corresponding public consultations on Investment-Based Crowdfunding. The primary scope of the Requirements is to establish a regulatory framework which fosters investment and facilitates access to finance for start-ups and early growth companies within a flexible yet reliable and prudent regulatory environment. As such, the Requirements aim to provide adequate incentives for investment whilst properly safeguarding investors’ interests. To this end, the new regulatory framework seeks to enable investors to invest their preferred amount in promising businesses within parameters that promote investment awareness and encourages the spreading of risk by retail investors.
Investment instruments that may be marketed via crowdfunding platforms include equity and types of debt securities normally associated with this kind of investment activity
The Regulator has attempted, via the Requirements, to recognise the variety of business models adopted in the industry and assess the same in terms of the applicable legislation. Accordingly, due importance has been given to proportionality in relation to the regulation of investment crowdfunding platforms, such that the application of certain rules and requirements may be dependent on the size of the applicant and the scale of the proposed business model, together with the nature and complexity of the business being carried out on the relevant platform provider.
Investment instruments that may be marketed via crowdfunding platforms include equity and types of debt securities normally associated with this kind of investment activity.