The EU Commission adopted as a result of its FinTech Action Plan, the European Crowdfunding Services Providers Regulation (ECSPR 2020/1503) on 20th October 2020. With this new regulation, it becomes possible for crowdfunding platforms to obtain "the EU Licence" to gain access to and benefit from the EU Single Market. However, it has been reported that not one single German crowdfunding platform has applied or granted this licence! The reason is claimed to be especially the strict liability regime in crowdfunding for key investment information sheet (KIIS). It is reported that this certainly hinders the attractiveness and competitiveness of German crowdfunding platforms.
According to art. 23 of ECSPR, members are under the obligation to ensure that the liability for misleading, inaccurate or omitted information stated in KIIS lay at least with the project owner, or its administrative, management or supervisory bodies. Moreover, names/titles, addresses and other important information regarding these legal or real persons should clearly be stated in KIIS. For KIIS at the platform level, the regulation requires only operator of the crowdfunding platform's liability for unfair, unclear, misleading information or for the omission of material information.
Normally EU regulations have force to be applied directly into national laws of member states without further transpositions. As several provisions in the ECSPR permit individual members to determine certain rules at national level, German lawmaker has opted to transfer this Regulation into German law through several provisions in different codes, like Securities Trading Act (WpHG) or Securities Prospectus Act (WpPG). All these provisions are in force since 10th June 2021 in Germany. Although crowdfunding platforms' activities fall under so many other regulations, it mainly concerns German securities law, or so decided the lawmaker, which are among the most important regulations in securities law. In the current liability regime in accordance with the art. 32c WpHG, project owner and the members of board of directors (BoD) are liable for illegal information stated in the KIIS with their intentions and negligence, whereas members of administrative or supervisory bodies are liable with their intentions and gross negligence. The same liability structure has been regulated for the KIIS at the platform level for operator of crowdfunding platforms in the art. 32d WpHG. There is no assumption of fault regulated in both provisions, whereby the burden of proof is with the plaintiff to establish causality.
Upon heavy critics from both business world and scholars, the German Federal Ministry of Finance and Federal Ministry of Justice together published on 12th April 2023 a Draft Bill on Financing Future-Proof Investments Act (Zukunftsfinanzierungsgesetz) or in short, Future Financing Act. According to this Draft, among many other changes in German capital market, the aforementioned provisions are about to be amended. In the newer version of the art. 32c WpHG, only project owner and anyone who sign the KIIS are liable for illegal information stated in the KIIS with their intentions and gross negligence. In line with this, as for the KIIS at the platform level, only the service provider or anyone who sign the KIIS are liable for illegal information stated in the KIIS with their intentions and gross negligence. As one may clearly see from the Draft, there is no mention of liability for members of any boards- neither in service providers nor in project owners. Furthermore, it is so regulated that defendants are expected to bear the burden of proof, meaning that they should prove the damages claimed do not result from their own intention or gross negligence. This provision clearly provides an assumption of fault in favour of investors.
Under the light of this new development from Germany, it seems safe to say that lawmaker has answered to the needs and pleas of the business world and scholars, beyond that, does so quickly with the code-level amendments in only almost 2 years. The extensive amendments this new Act is about to bring seems to affect so many other regulations regarding financial world, the influence of which is yet to be discovered. For now, Future Financing Act has every support from German capital market and its main actors. It is expected to increase the competitiveness of German capital market by attracting many investors and the chances of German crowdfunding platforms to acquire the EU Licence. However, one wonders whether the desired result could have been achieved through only one separate piece of regulation, and when, if ever, this Act will ever come into force.
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