Crowdfunding / crowdinvesting / crowdlending
FinTechs belonging to this category operate crowdfunding, crowdinvesting and crowdlending platforms on which money is raised to invest in various projects, mainly start-up companies and real estate projects. Crowdfunding is not a legal term, but often used as the general term for donation-based crowdfunding (the investor donates the money to the project), reward-based crowdfunding (the investor receives an often symbolic consideration for his investment), equity-based crowdfunding (crowdinvesting: the investor participates in the profits of the financed project or acquires shares or debt instruments) or lending-based crowdfunding (crowdlending: the investor is reimbursed at the end of the project with or without interest).
Attitude of the country towards crowdfunding, crowdinvesting and crowdlending platforms
All forms of crowdfunding are getting more and more popular in Germany. An obstacle is the tight regulation in this area. Fuelled by the Covid-19 pandemic and driven by new technologies such as mobile apps, customers seek for both new investment as well as financing opportunities. The crowdinvesting and crowdfunding market in Germany can be considered as constantly growing.
Obligations and requirements to provide crowdfunding, crowdinvesting and crowdlending platforms described above
Crowdinvesting and crowdlending platforms are potentially subject to a license requirement according to German Banking Act (Kreditwesengesetz – KWG), German Commercial Code (Gewerbeordnung – GewO) or German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG). Furthermore, in 2020 the EU introduced Regulation (EU) 2020/1503 on European crowdfunding service providers for business (European Crowdfunding Service Provider Regulation – ECSPR). Additionally, anti-money laundering and data protection regulations are to be complied with.
The required licence depends on the exact business model. License costs depend on the specific business model and result from fixed and time spent costs. Fixed costs are up to EUR 13,523.00 and additional time spent costs depend on the complexity of respective business model.
Among other things, particularly sufficient initial capital consisting of Common Equity Tier 1 capital (CET1) available in Germany is required to obtain a license. The amount of required CET1 is subject to a case-by-case assessment. For institutions offering both lending and deposit business, the required initial capital is EUR 5m.
When offering banking services, the service providers are to comply with requirements for the initial capital as well as with the funds requirements at all times. According to Art. 92 Regulation (EU) No. 575/2013 (Capital Requirements Regulation – CRR), these are: a CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6% and a total capital ratio of 8%. When calculating the capital ratios, the fixed overheads of the respective asset manager have an important impact.
Additional comments regarding the legal situation for crowdfunding, crowdinvesting and crowdlending platforms or what FinTech’s must be aware of in this business area
Payment service institutions or e-money institutions are required to have financial reserves depending on their structure under German company law.
The German Companion Act to the ECSPR has been heavily criticised by the Federal Crowdfunding Association (Bundesverband Crowdfunding) and others. In particular, liability for negligent prospectus errors was criticised as a locational disadvantage for Germany.
Market size for crowdfunding, crowdinvesting and crowdlending platforms and biggest companies in this business area
The German crowdfunding market had a volume of approx. EUR 2.9bn in 2019 with an average growth rate of 65% since 2010. In this overall figure for the crowdfunding market, crowdinvesting amounts to EUR 372.2m (132% average growth rate) and crowdlending amounts to EUR 2.4bn (63% average growth rate).
Additional comments regarding the economic situation for crowdfunding, crowdinvesting and crowdlending platforms or what FinTech’s must be aware of in this business area
The recently introduced Regulation (EU) 2020/1503 on European crowdfunding service providers for business (European Crowdfunding Service Provider Regulation – ECSPR) provides for uniform rules in the EU for crowd-investment or crowdfunding. It facilitates cross-border offerings for crowdfunding platforms. In addition, swarm investors can now select additional product types. Platforms shall meet stricter requirements. For example, the new EU regulation allows crowd investment platforms to also distribute loans, shares, bonds, profit participation certificates and the like.