Country Crowdfunding Factsheet Germany Date: June 2018
ECN Country Factsheet - Germany - June 2018 2 European Crowdfunding Network The European Crowdfunding Network AISBL (ECN) is the professional network promoting adequate transparency, (self) regulation and governance while offering a combined voice in policy discussion and public opinion building, incorporated as an international not-for-profit organization in Brussels, Czech Republic. We support our members in carrying initiatives aimed at innovating, representing, promoting and protecting the European crowdfunding industry. We aim to increase the understanding of the key roles that crowdfunding can play in supporting entrepreneurship of all types and its role in funding the creation and protection jobs, the enrichment of European society, culture and economy, and the protection of our environment. In that capacity we help developing professional standards, providing industry research, as well as, professional networking opportunities in order to facilitate interaction between our members and key industry participants. On behalf of our members, the ECN will maintain a dialogue with public institutions and stakeholders as well as the media at European, international and national levels.
ECN Country Factsheet - Germany - June 2018 3 This document has been extracted from Annex II of the study " Identifying market and regulatory obstacles to crossborder development of crowdfunding in the EU", published in November 2017 and funded by the European Commission (DG FISMA). Contents Germany... 4 Overview... 4 A. Role of alternative finance... 4 B. Regulatory context... 7 C. Disclosures & safeguards... 15 D. Support policies... 15 E. Additional insights... 16
ECN Country Factsheet - Germany - June 2018 4 Germany Overview The German market is the second largest in continental Europe. It follows France, the leader in Peer-to-Peer Consumer Lending, and ranks higher than the Netherlands for Peer-to-Peer Business Lending. Germany also features strongly as the European market leader within real estate Crowdfunding and Donation-based Crowdfunding 1. A. Role of alternative finance Market size In 2015, German online alternative finance grew by 115%, from EUR 140m in 2014 to EUR 249m in 2015. If this acceleration continues, Germany could become the largest alternative finance market in Europe, excluding the UK, in the coming years. 2 Trend Germany experienced a growth rate of 78% compared to the previous year. Equity-based Crowdfunding experienced a counter-trend, decreasing by 21% from 2014 to the following year. Figure: Crowdfunding activity in Germany from 2014 to 2017, Source: TAB 1 Sustaining Momentum. Cambridge Judge Business School, 2016. 2 EY, Open Evidence, Politecnico di Milano, European Crowdfunding Network (2016): Assessing the Potential for Crowdfunding and Other Forms of Alternative Finance to Support Research and Innovation. Final Report. (link)
ECN Country Factsheet - Germany - June 2018 5 Total Crowdfunding Platforms More than 100 active platforms were reported in 2017 by a local industry news outlet. 3 Crowdfunding models Equity-based Crowdfunding Though Equity-based Crowdfunding is performing well in terms of the overall 2015 European ecosystem (accounting for approximately 15% of all European Equitybased Crowdfunding), it experienced a significant decline in total volume from the previous years, reducing from EUR 30m in 2014 to EUR 24m in 2015. This 21% decline is likely the result of continued regulatory struggles, as indicated in several qualitative remarks from Equity-based platforms surveyed in the 2nd European Alternative Finance Industry Report. 4 Lending-based Crowdfunding Peer-to-peer Consumer Lending was the prevailing model, with the highest total volume accounting for EUR 253m from 2013-15, growing by approximately 121% from 2013-14, and by 70% from 2014-15. Over the course of three years, this model was also the fastest growing in Germany, with an average annual growth rate of 95% from 2013-15. In 2015, this model accounted for EUR 136m, or roughly 55% of Germany s total online alternative finance volume. 3 Das Crowdfunding Informationsportal (link) 4 Zhang, B., et al. (2016): Sustaining Momentum. The 2nd European Alternative Finance Industry Report. Cambridge University (link)
ECN Country Factsheet - Germany - June 2018 6 Starting from a low base in 2014, the Peer-to- Peer Business Lending model is the second highest ranked model in Germany by transaction volume. Accounting for EUR 49m in 2015, this model experienced the most significant growth rate from the previous year, increasing by 698% from 2014 s EUR 6m total Peer-to-Peer Business Lending volume. 5 Other Several new models also began trading in Germany in 2015, including: real estate Crowdfunding (EUR 8m), profit sharing Crowdfunding (EUR 320,000) and Debt-Based Securities (EUR 150,000). The average funding size and average number of participating funders in Germany vary considerably from model to model. As indicated in the figure above, Donation-based Crowdfunding saw an average of 18 individuals participating, with an average of EUR 1,651. 6 5 Zhang, B., et al. (2016): Sustaining Momentum. The 2nd European Alternative Finance Industry Report. Cambridge University (link) 6 Ibid.
ECN Country Factsheet - Germany - June 2018 7 B. Regulatory context Country Germany Summary Recent developments in Crowdfunding regulation First Crowdfunding regulation (Retail Investors Protection Act - Kleinanlegerschutzgesetz) entered into force on 10 July 2015 Revised Investment Products Act (Vermögensanlagengesetz) centrepiece of the new regulation and subject to the most changes Evaluation of German Crowdfunding exception does (likely) not lead to facilitation of German Crowdfunding regulation (especially the Crowdfunding exception) New amendments to the Crowdfunding regulation of the Investment Products Act (Vermögensanlagengesetz) entered into force in August 2017 Current/planned Crowdfunding regulation General regulation If Crowdfunding Platform facilitates offering of securities, investment products (Vermögensanlagen) or shares in collective investment undertakings (Investmentvermögen), the operator of the platform provides financial services - BaFin authorisation required Qualification of subordinated loans (Nachrangdarlehen), profitparticipating loans (partiarische Darlehen) and commercially comparable investments (wirtschaftlich vergleichbare Anlagen) as investment products (Vermögensanlagen) Exemption for investment brokering (Anlagevermittlung) (and investment advice (Anlageberatung)) only regarding investment products (Vermögensanlagen) or shares in collective investment undertakings (Investmentvermögen) - straightforward licence sufficient for operator of Crowdfunding Platform Prospectus Prospectus requirement for offering of securities or investment products (Vermögensanlagen)
ECN Country Factsheet - Germany - June 2018 8 requirement General threshold: EUR 100,000 per issuer within 12 months (inter alia) Qualification of subordinated loans (Nachrangdarlehen), profitparticipating loans (partiarische Darlehen) and commercially comparable investments (wirtschaftlich vergleichbare Anlagen) as investment products (Vermögensanlage) Increased regulatory requirements for prospectus for all investment products (Vermögensanlagen) Exception from prospectus requirement for Crowdfunding and P2P lending under specific conditions: - total offering maximum: EUR 2.5m; - offering only of profit-participating loans (partiarische Darlehen), subordinated loans (Nachrangdarlehen) or commercially comparable investments (wirtschaftlich vergleichbare Anlagen) (the latter relevant for P2P lending in Germany); - total investment amount for each investor per investment product (Vermögensanlage) of one issuer (Project Initiator) is restricted as follows: up to EUR 1,000: no restrictions more than EUR 1,000: cash deposits or financial instruments of the investor must exceed EUR 100,000 or maximum investment up to two monthly net incomes EUR 10,000: absolute maximum investment per investor Corporations: no restrictions - three-page fact sheet (VIB) with prior approval by BaFin AIFMD regulation Typical start-up company in general does not constitute an AIF Project Company might constitute AIF - extensive AIFMD regulation for AIF and its manager (AIFM) - AIFM requires BaFin authorisation Project Companies that constitute operating companies are not AIFs Funding by means of subordinated loans (Nachrangdarlehen), profit-participating loans (partiarische Darlehen) or commercially comparable investments (wirtschaftlich vergleichbare Anlagen) does not entail an AIF Cooperatives (Genossenschaften) shall according to BaFin not constitute a collective investment undertaking and there-
ECN Country Factsheet - Germany - June 2018 9 fore fall outside the AIFMD regulation Payment regulation service Transfer of funds through operator may constitute money remittance service (Finanztransfergeschäft) - BaFin authorisation required Cooperation with a payment institute/bank is required Further possible requirements German Trade, Commerce and Industry Regulation Act (Gewerbeordnung) German Act on Money Laundering (Geldwäschegesetz) German Securities Trading Act (Wertpapierhandelsgesetz) Regulatory barriers Inbound Foreign Crowdfunding Platform addressing German investors - German regulatory law is applicable since German investors are approached by presenting the investment opportunities in German language Crowdfunding Platform The platform has a foreign MiFID/MiFID II licence and intends to address German investors: - as a general rule, a platform with a foreign MiFID licence can conduct business in Germany without applying for a licence and without having a presence in Germany (socalled notification procedure/eu Passport) - however, MiFID (MiFID II) and the German implementation German Banking Act (Kreditwesengesetz) do not have the same scope. Therefore, e.g., shares of a German limited liability company or entrepreneurial company are covered by the scope of the German Banking Act (Kreditwesengesetz) but not by MiFID II s scope. The same applies to subordinated profit-participating loans (partiarische Nachrangdarlehen). - It remains an open question whether a Crowdfunding Platform with a foreign MiFID/MiFID II licence can offer financial instruments in Germany which are covered by the scope of the German Banking Act (Kreditwesengesetz) but not by MiFID - therefore, it cannot be excluded that a Crowdfunding Platform with a foreign MiFID licence might need in addition a (local) German licence in order to be allowed to
ECN Country Factsheet - Germany - June 2018 10 offer all kinds of company shares as well as subordinated profit-participating loans in Germany. - Generally, the foreign Crowdfunding Platform might be subject to other German regulation in exceptional cases (e.g., German Securities Trading Act (Wertpapierhandelsgesetz). It is not subject to the German Act on Money Laundering (Geldwäschegesetz). The platform has no MiFID/MiFID II licence and intends to address German investors The Crowdfunding Platform must apply for a licence: - generally: according to section 32 of the German Banking Act (Kreditwesengesetz), if the platform targets the German market in order to offer financial services, or - in exceptional cases: under section 34f of the German Trade, Commerce and Industry Regulation Act (Gewerbeordnung), if the platform only conducts investment brokering and only offers profit-participating loans (partiarische Darlehen), subordinated loans (Nachrangdarlehen) or commercially comparable investments (wirtschaftlich vergleichbare Anlagen) publicly for the first time. Foreign Company/project German prospectus regimes are applicable, since the foreign companies/projects offer investment opportunities in Germany Applicable prospectus regime depends on whether the foreign company/project offers transferable securities (which is often the case in foreign (EU) countries, e.g., France) or other financial products, which most likely are investment products within the meaning of the German Investment Products Act (Vermögensanlagengesetz) In the event a foreign company/project intends to benefit from the Crowdfunding exception, it is limited to offering subordinated profit-participating loans (partiarischen Nachrangdarlehen), since only these investment products (Vermögensanlagen) may benefit from Crowdfunding exemption. In exceptional cases, other regulation (e.g., German Securities Trading Act (Wertpapierhandelsgesetz)) might be
ECN Country Factsheet - Germany - June 2018 11 applicable, constituting information and compliance obligations (mainly if (equity/debt) securities are involved). The German Act on Money Laundering (Geldwäschegesetz) is as a general rule not applicable to the companies/projects. Foreign Crowdfunding Platform addressing German companies/projects - BaFin will (most likely) come to the conclusion that German regulatory law does not apply in the event that the investment opportunities are not presented in the German language. Crowdfunding Platform - As a general rule, since the foreign Crowdfunding Platform will not target the German market/german investors, German regulatory law is not applicable no licence requirements pursuant to German regulatory law. - Generally, the foreign Crowdfunding Platform might be subject to other German regulation in exceptional cases (e.g., German Securities Trading Act (Wertpapierhandelsgesetz). It is not subject to the German Act on Money Laundering (Geldwäschegesetz). German Company/project - Also, the German company/project will as a general rule not be subject to obligations pursuant to the German Securities Trading Act (Wertpapierhandelsgesetz) but is required to provide a disclaimer stating that it does not address German investors. - In the event that German companies/projects issue Debt- Based Securities (e.g., bonds) they might in exceptional cases be subject to other German regulation (e.g. German Securities Trading Act (Wertpapierhandelsgesetz)). - Issuing entities German companies/projects generally are no obliged person within the meaning of the German Act on Money Laundering (Geldwäschegesetz). Outbound German Crowdfunding Platform addressing foreign investors - Here, only foreign investors (e.g. a German platform addresses French investors) are addressed. However, if several further indicators (e.g., German contact persons, details or investment opportunities clearly adjusted to German
ECN Country Factsheet - Germany - June 2018 12 regulatory law, German language) lead to the assumption that the German market is being approached, BaFin might come to the conclusion that German market is being approached and German regulatory law is applicable. - However, within the overall view of all criteria, BaFin will (most likely) come to the conclusion that German regulatory law is not applicable in this case. This is because only foreign investors are addressed and only foreign (e.g., French) language is used. Crowdfunding Platform - As a general rule, since the Crowdfunding Platform will not target the German market/german investors, German regulatory law is not applicable no prospectus requirements. - A Crowdfunding Platform might be subject to other German regulation in exceptional cases (e.g., German Securities Trading Act (Wertpapierhandelsgesetz). It is not subject to the German Act on Money Laundering (Geldwäschegesetz). Company/project - Both the German Securities Prospectus Act (Wertpapierprospektgesetz) and the German Investment Products Act (Vermögensanlagengesetz) are not applicable since the financial products are not offered in Germany. In any case, it is required to place a disclaimer on the website (in German) stating that the offer is not intended to be offered to German investors. - Companies/projects that issue securities might in exceptional cases be subject to additional information/compliance regulation (German Securities Trading Act (Wertpapierhandelsgesetz)), e.g., in case the company/project issues securities that are admitted to trading on an organised market. - By contrast, companies/projects which issue subordinated profit-participating loans (partiarische Nachrangdarlehen) are as a rule not addressees of other additional (information or compliance) obligations (e.g., pursuant to the German Securities Trading Act (Wertpapierhandelsgesetz)). - Since issuing entities German companies/projects generally do not constitute obliged persons within the
ECN Country Factsheet - Germany - June 2018 13 meaning of the German Act on Money Laundering (Geldwäschegesetz), they are not required to comply with German anti-money laundering law. German Crowdfunding Platform addressing foreign companies/projects - Here, German investors are approached German language will be used. BaFin will conclude that German regulatory law will be applicable. Crowdfunding Platform - Regular German regulation applies to the Crowdfunding Platform (licence obligation). - Crowdfunding Platforms might be subject to other German regulation in exceptional cases (e.g., German Securities Trading Act (Wertpapierhandelsgesetz)). - They are not subject to the German Act on Money Laundering (Geldwäschegesetz). Company/project - German prospectus regimes are applicable, since the foreign companies/projects offer investment opportunities in Germany. - Applicable prospectus regime depends on whether the foreign company/project offers transferable securities (which is often the case in foreign (EU) countries, e.g., France) or other financial products, which most likely are investment products (Vermögensanlagen) within the meaning of the German Investment Products Act (Vermögensanlagengesetz). - In the event that a foreign company/project intends to benefit from the Crowdfunding Exemption, it is limited to offering subordinated profit-participating loans (partiarische Nachrangdarlehen), since only these investment products (Vermögensanlagen) may benefit from Crowdfunding Exemption. - In addition to the German regulation, the company/project might face (local) prospectus requirements pursuant to its home (EU) country, e.g., in the event that the home (EU) country/financial regulation authority follows an approach other than BaFin (marketing focussed approach).
ECN Country Factsheet - Germany - June 2018 14 Impact of EU regulation - In this case, the prospectus requirements of the host (EU) country as well as the German regulation might apply to the company/project, which might lead to double regulation. - Companies/projects that issue securities might in exceptional cases be subject to additional information/compliance regulation (German Securities Trading Act (Wertpapierhandelsgesetz)), e.g., in the event that the company/project issues securities that are admitted to trading on an organised market. - The German Act on Money Laundering (Geldwäschegesetz) is as a general rule not applicable to the companies/projects. Prospectus regulations Due to the fact that most of the German start-ups are not stock corporations, but constitute limited liability companies (GmbH) whose shares are not securities (which are subject to the EU prospectus regulation), these EU regulations have no great impact on Crowdfunding in Germany. AIFM Directive AIFM Directive and its implementation in German law have a very small impact on Crowdfunding, since the typical company (start-up) or project seeks funding for its general operative activity (commercial business) by means of a Crowdfunding Platform. Only so-called Project Companies that do not operate the business themselves and do not constitute a cooperative (Genossenschaft) might be subject to the fund regulation. Different interpretations of local authorities regarding the definition of collective investment undertaking (constituting an AIF) might lead to different application of AIFM-D and local implementations. - Severe consequences for company/project as well as (at least economically) for Crowdfunding Platforms. - Also, retail AIFs are regulated differently across the EU, which complicates cross-border situations.
ECN Country Factsheet - Germany - June 2018 15 MiFID/MiFID II In Germany, most of the Crowdfunding Platforms facilitate the offering of subordinated profit-participating loans (partiarische Nachrangdarlehen), which do not fall under MiFID/MiFID II. In doing so, they are able to use an exception to the German Banking Act (Kreditwesengesetz) and need a small (local) licence. This local licence has less requirements, but is not passportable into other EU Member States. PSD/PSD II Any transfer of funds through the operator of a Crowdfunding Platform generally constitutes money remittance services (Finanztransfergeschäft) within the meaning of the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz), the German implementation of PSD/PSD II in German law. Great impact for Crowdfunding regarding the transaction of the investments. C. Disclosures & safeguards Fundraisers protection In the new regulation, there is no specific information described regarding the protection of the project owner. Project owners sign contracts with the investors which constitute Standard Business terms. 7 The association Bundesverband Crowdfunding e.v. was founded in November 2015 and its main purpose is to serve as a networking forum for the platform owners and to develop best practices for the industry. The association developed a German Crowdfunding Code of Conduct. Its board of directors is composed of German platforms representatives. D. Support policies Market Supervision German Federal Financial Supervisory Authority Bundesanstalt für Finanzdienstleistungsaufsicht BaFin. 8 7 Crowdfunding Crossing Borders, Crowdfunding Hub, 2016. 8 Finanzdienstleistungsaufsicht - BaFin (link)
ECN Country Factsheet - Germany - June 2018 16 Crowdfunding models Crowdfunding guidelines for entrepreneurs/investors The Munich Chamber of Commerce offers a Crowdfunding Canvas and relevant information for preparing a Crowdfunding campaign. There is an independent platform offering information to Crowdfunding Platforms. Guide for Crowdfunding for the Tourism Industry. E. Additional insights Best practice initiatives The Chamber of Commerce in Munich offers start-up consultation and courses for becoming a Crowdfunding manager. Interest groups Bundesverband Crowdfunding Deutscher Crowdsourcing Verband