The Italian regulators recognized the potential benefits of crowdfunding such as reducing the costs of financial intermediation services, encouraging the diversification of families’ and institutional investors’ portfolios and increasing the possibilities for families and small businesses to obtain credit. Nonetheless regulators highlighted that this may also lead to offer credit to entities that are un-creditworthy, also in light of the fact that crowdfunding platforms are not incentivized to properly select the entities receiving the money. This may lead, ultimately, to increase the overall systematic risk of economy. In addition, the use of digital means may not grant proper transparency towards consumers. The regulation on such services is evolving and it is likely that regulators will continue to pay particular attention to the activities of the operators in the market.
Under Italian law, only crowdinvesting is specifically regulated under Section 50-quinquies TUF and under Section 100-ter TUF. In particular, Section 50-quinquies provides the general rules governing the conditions to be met in order to provide the service of management of portals for the venture capital fundraising for small/medium businesses and social firms. Only offering to the public of financial instruments issued by small/medium businesses, social firms, collective investment schemes or other companies mainly investing in small/medium businesses may be carried out via crowdinvesting portals. However, pursuant to 2018 Budget Law (Law no. 145/2018), debt instruments can also be offered via crowdinvesting portals, to the extent that the offer is carried out in a separate area of the portal and the offer is addressed only to professional investors and other specific categories of investors identified by CONSOB (the relevant implementing regulations have still to be published).
These rules are also integrated by CONSOB’s Regulation no. 18592/2013 on the venture capital fundraising by means of online portals, as recently amended in 2018 upon a public consultation launched in 2017 (the “Crowdfunding Regulation”). In this regard, CONSOB recently launched a public consultation aimed at collecting stakeholder’s opinion on specific amendments to the Crowdfunding Regulation in light of the innovations introduced by 2018 Budget Law.
The management of on-line crowdinvesting portals is a restricted activity and therefore is subject to the prior authorization by the Bank of Italy, as long as banks are concerned, or by the CONSOB for investment companies and intermediaries. The crowdinvesting portals authorized in Italy are enrolled with a registry, which is publicly available on the CONSOB’s website.
As anticipated, the other types of crowdfunding are not specifically regulated under Italian law. As regards crowdlending, the Bank of Italy issued the Resolution of November 8, 2016 on the entities that collect savings different from the banks, which however does not set out new rules on such topic. In addition, in March 2017, the Bank of Italy released a paper mainly for discussion purposes on “Lending-Based Crowdfunding: Opportunities and Risks”.
Specifically, the Bank of Italy clarified that crowdlending platforms shall be authorized either as financial intermediaries, payment services institutions or electronic money institutions depending upon the specific characteristics of the provided services. Moreover, crowdlending platforms should remain third party acting independently, by only connecting creditors with recipients.
As mentioned above, donation-based crowdfunding and reward-based crowdfunding are not specifically regulated under Italian law. Indeed, the activity performed by such platforms does not generally constitute a financial service/activity. Therefore, generally speaking no license is required to provide donation-based and reward-based crowdfunding in Italy as long as no investment services/activities are concerned.
According to the CONSOB’s 2018 Annual Report, the crowdinvesting platforms registered in Italy as of December 2018 are 30 (they were 20 at the end of 2017).
As to crowdlending platforms, a report by the Polytechnic University of Milan shows those were in 2018, collecting almost EUR 18 million through Donation and Reward based crowdfunding. The market is said to be rapidly expanding in connection with such innovative services.
As far as crowdlending is concerned, we do not envisage any new incoming regulation in addition to the existing ones. Indeed, the Bank of Italy clarified in the already mentioned paper on “Lending-Based Crowdfunding: Opportunities and Risks” that, given the small dimensions of this market, a specific regulation may constitute an obstacle for the development of these services.
On the other hand, as also anticipated, CONSOB recently launched a public consultation with the aim to revise the Crowdfunding Regulation. The consultation will end on July 20, 2019.
Throughout 2018 further supervisory activity was carried out, consistently with the risk-based approach, regarding local and EU investment companies with a branch in Italy, to check whether internal organizational measures were in line with the MiFID II framework.