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Erscheinung:15.09.2016 | Topic Fintechs, Authorisation Crowdinvesting: The prospectus requirement exemption one year on – an overview

10 July 2016 marked the one-year anniversary of the coming into force of the Retail Investor Protection Act (Kleinanlegerschutzgesetz) and, with it, the inclusion of some new exemptions from the prospectus requirement in the German Capital Investment Act (Vermögensanlagegesetz - VermAnlG). One of these new rules is contained within section 2a of the VermAnlG, which exempts certain public offers of capital investments brokered over an online service platform as part of a crowdinvesting project (see Expert Article from June 2014) from the prospectus requirement, amongst other things.

Thanks to section 2a of the VermAnlG, it is possible for small and medium-sized enterprises and, in particular, start-ups to acquire capital in a relatively quick and simple manner in order to start or expand their business operations or launch new projects. In this way, they can raise capital from retail investors without being exposed to the high costs associated with a prospectus. The fee for prospectus approval and retention amounts to between €1,500 and €15,000. On top of this, there are the costs charged by law firms for drawing up a prospectus, which are often in the five-digit range.

This article provides an overview of the rules for crowdinvesting, explains what offerors have to be aware of if they want to avail themselves of the exemption from the prospectus requirement and reports on the initial experiences on the ground.

Conditions

Three conditions must be met in order for offerors to be able to avail themselves of the exemption provided for in section 2a of the VermAnlG. Firstly, the exemption is only possible in the case of public offers of profit participation and subordinated loans (section 1 (2) nos. 3 and 4 of the VermAnlG) as well as other capital investments within the meaning of section 1 (2) no. 7 of the VermAnlG. Although in theory other kinds of capital investments can also be offered via an online service platform, these cannot be exempted from the prospectus requirement within the scope of section 2a of the VermAnlG.

Secondly, the selling price of all capital investments offered by one issuer may not exceed €2.5 million.

Thirdly, the offers have to be brokered by way of investment advice or investment broking via an online service platform which has been authorised to operate as an investment services undertaking pursuant to the German Banking Act (Kreditwesengesetz – KWG) or as a financial broker pursuant to the German Industrial Code (Gewerbeordnung – GewO). The online service platform must ensure that the investment is suitable for the respective investor as well as ensuring compliance with the single investment thresholds. In particular, an investor may, amongst other things, only invest up to €10,000 if he has freely available assets of at least €100,000 or if the investment sum amounts to no more than twice his monthly net income, up to a maximum of €10,000.

Concessions

If these prerequisites are met, the offeror of the capital investment can enjoy certain concessions. For example, they are exempt from the requirement to draw up a prospectus. In addition, section 5a of the VermAnlG does not apply to these capital investments, which means that the offers are not required to have a time to maturity of at least 24 months. Furthermore, there are concessions in terms of accounting: the annual report to be published pursuant to section 23 of the VermAnlG does not have to include an audited management report, amongst other things.

The offerors and issuers of the capital investments specified are, however, not entirely exempt from the requirements standardised by the VermAnlG. For example, the concept of their capital investment may not provide for any obligation to make additional contributions (section 5b of the VermAnlG), and the rules contained within section 12 of the VermAnlG on the advertising of capital investments must be complied with. The offeror is responsible for the correct advertising of the capital investment.

Capital investments information sheet

The offeror must also ensure that a capital investments information sheet is properly drawn up and filed with BaFin before the capital investment is offered to the public. In practice, this task is usually performed by the platform operator. Each capital investments information sheet may only relate to one capital investment. If an offeror wishes to offer more than one capital investment, they must draw up and file a separate information sheet for each capital investment. This is to be made available to would-be investors before any contract is concluded. The capital investments information sheet is intended to ensure a certain minimum level of transparency.

Section 13 of the VermAnlG stipulates the minimum information which the capital investments information sheet must include. If information is missing, this can result in the submitted document not being considered a capital investments information sheet. Offerors should therefore familiarise themselves early on with the requirements. If the information sheet meets these requirements, BaFin sends a confirmation of receipt to the filer, thereby indicating that the information sheet has been properly drawn up and filed. If the public offer begins before confirmation of receipt has been received, there is therefore a risk that the public offer is unauthorised, constituting an administrative offence pursuant to section 29 of the VermAnlG.

BaFin endeavours to process the submissions as quickly as possible. However, it is advisable to send in the capital investments information sheet a few days before the start of the public offer. If the offer throws up legal questions, processing can take some time. To save time, the submitted information sheet should also include a covering letter which indicates that the information sheet is being filed with recourse to section 2a of the VermAnlG for a public offer of a capital investment, as well as specifying who is filing the capital investments information sheet, who the offeror or issuer of the capital investment is and via which platform the capital investment is to be brokered. In addition, if the filer is not the offeror of the capital investment, they must enclose a power of attorney granted to them by the offeror and authorising them to file the capital investments information sheet with BaFin.

Other restrictions

The exemption pursuant to section 2a of the VermAnlG cannot be availed of as long as a capital investment of the issuer is publicly offered pursuant to section 2 (1) no. 3 of the VermAnlG or such a capital investment has not yet been fully repaid. This pertains to offers where the number of units or shares offered in the same capital investment does not exceed 20, where the selling price does not exceed €100,000 within a period of 12 months or where the price for each unit or share offered amounts to at least €200,000 per investor.

If, for example, the issuer already offers a capital investment with which less than €100,000 is to be collected within 12 months, they cannot avail themselves of the exemption pursuant to section 2a of the VermAnlG for another public offer until the capital investment offered has been repaid in full.

Teething problems

At the beginning, the operators of the online service platforms and the offerors of the new capital investments were not used to having to go through a government authority before placing a public offer. It also became clear that the quality of the documents submitted was inadequate to begin with. In addition, there were communication problems. For example, the platforms often submitted the capital investments information sheets without enclosing any covering letter, which meant it was unclear to begin with who was filing the information sheet and whether or not they wished to avail themselves of an exemption from the prospectus requirement in the first place. In addition, capital investments information sheets were submitted which were longer than the maximum permissible limit of three pages or where information was either absent or incorrect.

Furthermore, some market participants had clearly only concerned themselves with the exemption criteria of section 2a of the VermAnlG but not with other provisions of the VermAnlG which were relevant for them. So, for example, capital investments information sheets were submitted for public offers with an issue volume of less than €100,000. Under this de minimis threshold, however, offers are not only exempt from the prospectus requirement; their offerors are also not obliged to file a capital investments information sheet. The rules for the advertising of capital investments were also not observed by some platforms. For example, the information compulsorily prescribed by section 12 of the VermAnlG was absent – including for instance the indication that purchasing the capital investment entails significant risks and could lead to complete loss of the capital invested (section 12 (2) of the VermAnlG).

The quality of the documents submitted has now improved thanks to increasing professionalisation among the market participants and the clarification efforts undertaken by BaFin. The websites, too, which the crowdinvesting platforms create for the respective public offers, by now almost always contain the necessary information.

Numerous cases of exemption

While use of the exemption pursuant to section 2a of the VermAnlG was modest in the first few months, crowdinvesting platforms are now filing an average of 20 capital investments information sheets every month with BaFin on behalf of the respective offerors. In total, the exemption has been availed of to date 223 times for public offers of capital investments. These capital investments are offered by a total of 30 online service platforms.

The offers relate primarily to profit participation and subordinated loans. Other capital investments within the meaning of section 1 (2) no. 7 of the VermAnlG play a rather secondary role. The issue volume which the offerors wish to raise during a crowdinvesting project amounts to an average of €650,000.

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