Regulation at EU level
Legal frameworks at national level exist for crowdfunding in some Member States. Given the differences in national regulations, a barrier currently exists for a number of start-ups and SMEs that would benefit from crowdfunding.
In order to facilitate the supply of this type of services, the main supranational legislation governing the matter, namely Regulation 2020/1503 (“the Regulation”), has been adopted. Its adoption not only set a common legal framework for Member States, but also overcame existing obstacles to crowdfunding in the national legislation of some Member States.
Crowdfunding in Bulgaria
Although the Regulation is directly applicable on the territory of the Republic of Bulgaria, the legislating body has implemented the main provisions in the Public Offering of Securities Act (“POSA”), mainly referring to the definitions and wordings in the Regulation. Here are some of the key points:
- Only a limited liability company or a joint-stock company may become a crowdfunding service provider. However, they must first obtain a license from the Financial Supervision Commission (FSC), which is the competent authority in the Republic of Bulgaria on the performance of functions and obligations in the context of crowdfunding services;
- Additional requirements of good reputation, sufficient skills and experience are also in force for the members of the supervisory and management bodies of the company concerned. This constitutes one of the protection mechanisms for inexperienced non-professional investors who may potentially invest;
- Among the requirements for obtaining the license is the obligation to submit a program of operations, a description of management procedures and internal control mechanisms, a description of data processing systems, a description of operational risks, etc.;
- Another guarantee for potential investors is the obligation for providers of collective financing services to always have a guarantee of either EUR 25 000 or one quarter of the fixed total costs of the previous year (whichever is higher).
The provision of collective financing services and the provision of payment services are not identical, though and this should be recognized. They are two different substances, respectively two different licenses. In the case of a provider of a collective funding service who also provides such payment services in connection with it, it must also be a payment service provider under Directive (EU) 2015/2366.
Investor Protection
The Regulation contains several provisions on investor protection. These are of key importance as participants in the collective financing process are not only professional investors but also unsophisticated ones. One of the rules ensuring investor protection is the obligation of the service provider to provide the potential investor with a so-called “key investment information sheet”. This contains a disclaimer, a warning about the risks and must also be fair, clear and not misleading.
The Regulation also contains a number of other protective and preventive mechanisms for inexperienced investors, although the amendments to the POSA do not name them or refer to them explicitly. However, they should also be applicable and, in addition, under Article 179 of the POSA, the FSC may by regulation lay down additional requirements on the subject matter.