The Malta Financial Services Authority has published the requirements regarding applications for a licence to provide Investment-based Crowdfunding services. Crowdfunding is a popular medium that creates opportunities for connecting investors and businesses seeking to finance their projects, and facilitates the provision of platform-based intermediation services.
The Requirements outline the manner in which investment-based crowdfunding services may be authorised and regulated under the Investment Services Act, and shall apply in conjunction with the “Investment Services Rules”, “Conduct of Business Rules”, and any other relevant Regulations issued under the Act. MFSA states that these Requirements have been formulated in the light of the applicable frameworks including Markets in Financial Instruments Directive (MiFID) as well as feedback received in the course of public consultations following the publication of the MFSA Discussion Paper on Investment-Based Crowdfunding of 03/11/2016 and subsequent Feedback Statement published on 06/10/2017.
The Requirements seek to establish a regulatory framework which fosters investment and facilitates access to finance for start-ups and early growth companies within a flexible yet reliable environment. For this purpose the Requirements aim to strike a balance between providing adequate incentives for investment and safeguards for investors. The framework seeks to enable investors to invest their preferred amount in promising businesses within parameters that promote investment awareness and encourages the spreading of risk by retail investors.
Due importance is given to proportionality in relation to the regulation of investment crowdfunding platforms, as the applicable rules might vary depending on the size of the applicant and the proposed business model, as well as the nature and complexity of the business being carried out on the relevant platform. This approach recognises the variety of business models adopted in the industry and requires that these be assessed in terms of the applicable legislation. Investment instruments that may be marketed via the applicants’ platforms include equity and types of debt securities normally associated with this kind of investment activity.
The MFSA wishes to highlight that the investment opportunities offered via crowdfunding platforms carry a significant degree of investment risk. Risks usually linked to this type of investment include a high rate of failure, low returns, and difficulty to sell or redeem.
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