Impact of regulation on investment crowdfunding

Abstract

This article focuses on the regulation of investment crowdfunding as a key criterion for the dynamic but safe development of this form of business financing. The aim of this article is to analyse the existing regulatory framework in developed market economies, such as the UK and the US, which are the leaders in the alternative finance market, and to try to assess whether the pan-European equity crowdfunding regulations that are being introduced have a chance of enabling the European equity crowdfunding market to emerge. Crowdfunding, and in particular investment crowdfunding, is a relatively new form of alternative financing for business activities, which can and – in its mature form – does provide an important source of funding that ‘fills the gap’ in early-stage financing for start-ups, innovative projects and is also a source of financing for SMEs. The intensive, uncontrolled development of innovation in financial markets generally leads to irregularities (fraud, abuse, and crises). In turn, excessive and restrictive regulation can act as a brake on the development of financial innovation. Until 2023, crowdfunding in EU countries will be regulated only by national laws, most of which are not specific to this form of financing. The fragmentation of the European market and the inconsistency of regulations have led to a slowdown in the development of this form of financing, resulting in a loss of development potential for companies and entire economies. The authors present the equity crowdfunding regulations of the US and the UK – the world’s number 1 and 2 crowdfunding markets – as a benchmark for the proposed pan-European regulations. The features of the common European rules seem to meet the requirements. And the increase of the funding amount to EUR 5 million opens up completely new possibilities for equity crowdfunding.