German Legislator reforms rules for crowdfunding allowing for broader exemption, transparency and investor protection
The European Prospectus Regulation will take effect on June 21, 2019. The implementation process requires a package of national legislative amendments which, in Germany, give the chance to also update the German Capital Investment Act (Vermögensanlagegesetz – VermAnlG). Based on regulatory practice offered by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) specifically legislation regarding crowdfunding is subject to change.
Considered Investments: So far, exemptions (such as the exemption from issuing a prospectus) for crowdfunding could only be claimed for profit participating loans, subordinated loans and other investments (in the meaning of sec. 1 par. 2 no. 7 VermAnlG). The amendment adds participation rights to this list. (sec. 2a par. 1 VermAnlG).
Elevated Threshold: Only such investments with a combined sales value not exceeding EUR 2.5 million were eligible for exemptions. This threshold will be elevated to EUR 6 million. Additionally, the amendment clarifies that the relevant timeline for calculation is a 12 months period. All investment offers which are either not sold or fully repaid will not have to be factored in this threshold. (sec. 2a par 1 VermAnlG)
Investor Threshold: Next to the threshold on the total amount of investments VermAnlG defines three individual thresholds for crowdfunding investors. These thresholds define the possible maximum individual investments of which at least one must not be exceeded. The general threshold for individual investments lies at EUR 1,000. Should the investor control credit or financial instruments valuing at least EUR 100,000 the investment maximum lies at EUR 10,000. The third threshold is double the investor’s average monthly net income, but limited to EUR 10,000. This last threshold will be elevated to EUR 25,000. (sec. 2a par. 3 VermAnlG).
Exemption for corporate entities: The investor thresholds did so far not apply to corporate entities. In general, this rule stays in effect. However, the new language is designed to include investors in the form of a limited partnership with a limited liability company as general partner (GmbH & Co. KG) as long as the limited partners are shareholders of the general partner (GmbH) or otherwise involved in the general partner’s decision making process and as long as the GmbH & Co. KG is not an investment fund or a management company regulated by the German Capital Investment Act (Kapitalanlagegesetzbuch – KAGB). (sec. 2a par. 3 VermAnlG)
Entangled Interests: Due to provisions for the protection of investors the crowdfunding exemption cannot be leveraged should the crowdfunding platform operator and the issuer of the capital investment have entangled interests. The amendment introduces new language to cover the entangled interests more appropriately. (sec. 2a par. 5 VermAnlG)
Incomplete prospectuses: If individual terms of a bid were set shortly before the public offer, the prospectus could be published without this information. Due to provisions regarding transparency as well as the protection of investors this option is no longer available. (Former sec 10 VermAnlG)
Notification regarding the end of an offering: Existing rules regarding notification obligations on the end of a public offering as well as for a deletion are substantiated. Such notifications must now include the date as well as specific identification of the capital investment and the issuer. (Former sec 10a VermAnlG, now sec 10 VermAnlG)
Capital Investment Fact Sheet: Existing rules regarding capital investment fact sheets are subject to conforming change. In this course the wording for non-existing entangled interests of the crowdfunding platform operator and the issuer is aligned. Additionally, the fact sheet must include information regarding the contractual and real collateral of the repayment claims of capital investments in real estate finance as well as in the case of crowdfunding, the purchase price of all offered, sold and completely repaid capital investments of the emitter within the last 12 months. (sec. 13 par. 3 VermAnlG)
The finance committee of the German Bundestag proposed the adoption of the above mentioned changes on 8 May 2019. The plenary adopted the changes on 9 May 2019 which will subsequently take effect on the day of proclamation.