Editor's note: At the end of June while everyone was preparing for summer holidays, the FIN-FSA regulatory body published its new guidelines for equity crowdfunding in Finland, which were near opposite what they presented only a month before that. This sudden change in new guidelines have a huge impact on Finland's crowdfunding industry, which in many ways has been at the forefront of the world's equity crowdfunding scene. Below is a guest post by Antti Hemmilä of Attorneys at law Borenius, who has previously written for us on crowdfunding here.
During the last few years, equity crowdfunding has been a fast growing activity in Finland and in the rest of Europe. Equity crowdfunding has proved to be an attractive funding option for entrepreneurs. While still in the pioneering stage, the largest Finnish equity crowdfunding platforms Invesdor and Venture Bonsai alone claim that approximately EUR 3.5 million of funding has been raised via their platforms. Until now, the Finnish crowdfunding platforms have been operating on the widely accepted consensus that they act as a “media”, and thus no regulated financial services are provided.
On 26th June 2014 the Finnish Financial Supervisory Agency (FIN-FSA) published its new guidelines on equity crowdfunding. Under the new guidelines, equity crowdfunding platforms are engaged in the “reception and transmission of orders in relation to one or more financial instruments” as described in the Financial Services Act. Depending on the scope of their services, the may also provide other regulated services, such as investment advice and duties typically undertaken by arranger banks.
FIN-FSA’s written guidelines were somewhat expected as regulators in Europe are taking a closer look at equity crowdfunding. Italy, Spain, France and the UK, for example, have implemented guidelines on equity crowdfunding, ranging from strict regulation to guidance on transparency and customer protection aspects. However FIN-FSA´s surprise move simply classifies all equity crowdfunding platforms as financial service providers, while not providing any new guidance on prospectus requirements, disclosure requirements or other investor protection issues. This makes the current Finnish regulation on equity crowdfunding platforms among the most restrictive in all of Europe.
The new FIN-FSA guidelines apply only to equity crowdfunding platforms, but overall this may be deemed as a negative development for all the parties concerned.
The Finnish equity crowdfunding platforms need to apply for a permit for acting as an investment firm, or else shut down or pivot. While some of the platforms surely apply for the permit, the time and cost of doing so makes less sense when such registration is not required from their foreign competitors (although registration has some benefits, too).
Finnish companies seeking funding probably have less choice when choosing a equity crowdfunding platform, and they may not feel comfortable in registering at a foreign platform if their own service is focused on the Finnish market. Similarly for investors there may be a lack of choice of both Finnish companies to invest in and crowdfunding platforms to choose from. Needless to say, the above is also disappointing for the Finnish startup scene and economy in general, especially since other government organizations such as the Ministry of Finance and Ministry of Employment and the Economy have taken a pro-crowdfunding approach.
Yes, it can be argued that this enhances investor protection. But such “paternalism” comes at a high cost to Finnish entrepreneurs and public.
What's your view on the subject?
About the Author
Antti Hemmilä advises on venture capital, M&A, capital markets and general corporate law related questions, with special focus on start-ups. He has wide-ranging experience in advising small and medium-sized companies on numerous M&A and financing arrangements, representing both companies and finance providers. Antti has also worked on numerous capital markets transactions.
Attorneys at law Borenius Ltd is one of the leading law firms in Finland offering a full spectrum of commercial law services. Attorneys at law Borenius’ mission is to be the most hands-on, client-centred business solution provider. The firm’s approach to business challenges is team-oriented, combining its strong and diverse expertise with a thorough business understanding. Attorneys at law Borenius Ltd is part of the Borenius Group network which consists of approximately 200 lawyers in four jurisdictions in Fenno-Baltic area as well as in New York and St. Petersburg.