The US has just celebrated the first anniversary of its regulated crowdfunding regime, known as “Regulation Crowdfunding”. It was by all accounts a very happy anniversary for many US start-ups, as Regulation Crowdfunding reportedly raised $40 million in its first year. US advisory and education firm, Crowdfund Capital Advisors report that the average successful crowdfunding campaign raised around $282,000 from around 312 investors. Regulation Crowdfunding allows companies to raise up to $1,070,000 over a 12-month period.
Legal status of crowdfunding in Ireland
In contrast with the US, crowdfunding is not a regulated activity in Ireland.
The Central Bank of Ireland (the Central Bank) issued a notice in June 2014 to alert consumers to the fact that crowdfunding, including peer-to-peer lending, is currently not a regulated activity in Ireland. As a result certain protections do not apply to crowdfunding participants.
While the funding environment has developed significantly since the Central Bank of Ireland issued this notice, the Irish regulatory environment has remained largely unchanged. This begs the question as to whether regulation is now necessary or even desirable.
We previously reported that the absence of regulation is not necessarily a bad thing. An unregulated environment brings with it its own set of benefits and drawbacks:
On the positive side, the absence of a regulatory framework means there are no restrictions on who can invest, or on the amounts that can be raised or invested. In contrast, the Regulation Crowdfunding regime in the US has strict limits on the amount which a person may invest through crowdfunding each year. These limits are determined by an individual’s annual income and net worth.
On the negative side, the lack of regulation means that many investor-protection mechanisms are simply not available. For example, the Central Bank’s codes of conduct and client asset rules do not apply to crowdfunding platforms.
Possible regulation in Ireland?
The Department of Finance (the Department) and the SME State Bodies Group have issued a public consultation paper on the possible ‘Regulation of Crowdfunding in Ireland’. They are considering how to facilitate the development of crowdfunding in Ireland for the benefit of the economy while also ensuring adequate protection for small investors and consumers.
The objective of this consultation is to invite the views of interested parties on whether a regulatory regime would be appropriate for the crowdfunding sector. It also seeks to determine whether a regime (or limited regime) with its inherent obligations and costs would be an impediment to the development of crowdfunding in Ireland. In particular, the Department is inviting the opinions of anyone who has views on:
consumer and investor protections;
crowdfunding as a viable alternative source of finance and its potential implications for financial stability; and
the costs and benefits of a regulatory regime for crowdfunding.
Any comments and views that respondents might have on the costs and benefits of regulating crowdfunding, as compared with the current situation, are welcome. In addition, observations and comments are also invited on any other aspects of crowdfunding and not just the issues identified in the consultation paper.
Have Your Say
If you are interested in giving feedback, you can access the consultation paper here: Regulation of Crowdfunding (Consultation Paper).
For more information, contact a member of our Technology team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.