Regulating Equity Crowdfunding Service Providers - An Innovation-Oriented Approach to Alternative Financing

Abstract

In recent years the advancements in technology have led to an upheaval in many markets. In the financial sector, technological innovations have led to the emergence of technology-enabled financial services, ranging from new product offerings to new business concepts. In this article, the regulatory challenges facing online intermediary platforms, and in particular equity-based crowdfunding platforms, are discussed more in detail. An integral part of crowdfunding is the prevalence of actors who provide crowdfunding services, operating digital crowdfunding platforms, where the business funding interest of investors and companies is matched. Equity-based digital platforms have over the past few years become an important financing alternative, especially for small and medium-sized growth companies. However, such platforms have only recently attracted the attention of regulators. In this article, the regulatory framework covering equity-based crowdfunding platforms in the Nordic countries is discussed in detail. It is concluded that the Nordic countries have very different approaches to regulating crowdfunding platforms, hindering the development of a pan-Nordic market in equity crowdfunding. The proposal for a pan-European opt-in legislation covering Crowdfunding Service Providers (CSPs) is likely to complicate the regulatory framework in the Nordic countries even further. Although the Nordic countries have chosen different paths in regulating equity-based CSPs, the regulatory regime each country has chosen for the registration or authorization of CSPs does not seem to be decisive of the success of local equity crowdfunding markets. This does not mean that regulation of the sector is irrelevant for the success of an alternative finance market. On the contrary, the regulatory requirements on crowdfunding project owners seem to have a significant effect on the development of the market. It is suggested in the article that the dismal development of equity crowdfunding in Norway and Denmark is likely to be caused by the restrictions on offers in private company shares on online intermediary platforms in the two countries, and not by the admittedly burdensome authorization requirements applicable to CSPs. The legal environment is thus of importance for the development of equity crowdfunding in individual Nordic countries, although not in the way it is usually perceived to be of importance.