There are no social and political reservations towards crowdfunding platforms, instead there is a growing interest.
Currently, there are some regulations of the CBU that –eventually- may be deemed to apply to these type of activities, but there is no specific license required. Hence, unless you trigger certain issues we mention in the following paragraphs, no registration or license would be required.
Further, there is currently a draft law being analyzed in Parliament which purports to regulate the basics of crowdfunding and to delegate in the Central Bank of Uruguay the control and regulation of these type of activities.
As mentioned above, even if no specific license currently applies to these type of activities, certain regulations need to be taken into consideration.
Under current Uruguayan regulations, any natural person or legal entity, may provide financing to local or foreign companies without being necessary to comply with any particular authorization, licensing or registration procedure, provided that in that case the person providing such financing is not deemed to be carrying out financial intermediation.
As noted above, it is important that the non-banks providing financing are not deemed to be carrying out financial intermediation activities as such situation will trigger the requirement of obtaining authorizations and licensing. Such situation as we will explain depends on the source of funding. The current legal and regulatory framework governing “Financial Intermediation” activities in Uruguay is provided mainly by Decree Law No. 15.322 (hereinafter referred as to, “Banking Act”). The Banking Act defines “Financial Intermediation” as: “The carrying out, in a professional and customary way, of intermediation activities or mediation between the offer and demand of securities, money or precious metals”.
Please note that such financial intermediation activity ruled by the Banking Act implies that an activity consisting of “credit intermediation”, both in the asset and in the liability side of the credit relationship, will need to be performed on a professional and customary basis. Each time investors engage in financial intermediation to raise funds from the public, they are having access to the public’s savings and their activities are therefore a matter of public interest. Consequently, the deposit taking will be considered as a fund raising from the public and therefore constitutes “credit intermediation”. These services shall only be done by authorized entities, provided these activities are to be performed in Uruguay in a regular and permanent manner.
Furthermore, recently CBU’s Charter (Law No. 16.696) has been amended, and according to the CBU and some scholars, the “financial intermediation” concept has changed with it. The CBU argues that, based on the new wording of section 34 of the Charter, funding may be only done by specific third parties (listed below), otherwise it shall be deemed that “financial intermediation” activities are being performed and therefore trigger the need of obtaining authorization and licensing. Said third parties are:
- natural persons who are directors or shareholders of an Uruguayan company;
- national or foreign financial intermediation institutions;
- international credit or development promotion agencies;
- foreign pension funds or investment funds subject to a regulatory authority, in which the credit or credits granted to the Uruguayan company, do not exceed one percent of the fund's investments to be determined by the SFS’s regulations of the CBU;
- any other legal entity with a financial purpose, financial trust or affected equity of a similar nature, which -meeting the requirements of paragraph (d) above- would be authorized by the SFS of the CBU to fund the Uruguayan Company.
On the other hand, regarding crowdinvesting where the investor participates in the profits of the financed project or acquires shares or debt instruments, and the invitation to participate in such investment would be widely offered in Uruguay, that offer may constitute a public offering of securities and therefore registration of the issuer and the security before the CBU will be tiggered.
However, said activity may be performed in reliance with the private placement exception. To rely on the private placement exception, the following conditions must be met:
- Marketing materials delivered to investors must bear a legend stating that the offering constitutes a private placement and that neither the project, the platform nor the shares or debt instruments will be registered with the CBU.
- The entities involved in a Uruguay offering that relies on a private placement exception should develop a test to confirm that the investors are “wealthy, sophisticated or institutional investors”
- Privately placed securities may not be quoted on any local stock exchange.
- Privately placed securities may not be posted on local web sites which may be accessed by any potential investor (or more than 25 investor in the case mentioned below).
It should be confirmed that both the number of investors and the amounts that they invest are limited. Until recently there was no regulatory limit to the number of investors for a private placement under Uruguayan local regulations, but a recent regulation (Circular N°2257 of the CBU) imposes a limit of 25 investors in the context of a private placement of locally issued securities.
Although this new limit only applies for private placements of locally issued securities (and not the cross-border private placement of non-Uruguay securities), we believe it provides guidance as to the threshold above which the CBU will treat even a cross-border offering as a public offering of securities.
In order to operate the platforms pursuant to the private placement exception, clients must be approached on an individual basis without any broad publicity efforts, road shows, presentations (except one-on-one presentations) or general solicitations.
This is an incipient market.
Please see above in Uruguay/Asset and Portfolio management/miscellaneous.