Crowdfunding Slated to Face Regulatory Headwinds?

Crowdfunding has helped propagate the inception of numerous startups – however, the popularity of this type of investment has drawn the attention of EU regulators.

Crowdfunding has been utilized on such platforms as Crowdcube, Funding Circle and Kickstarter. As recently as last week, the UK’s SyndicateRoom topped $23.4 million (£15 million) in crowdfunded deals.

As a result of this popularity, EU regulators, including the European Securities and Markets Authority (ESMA ) have called for more regulations to help supervise and oversee this type of investment to help overcome information shortcomings and high failure rates.

The inherent nature of crowdfunding creates some issues for regulators, namely as investors are not privy to the same sorts of details and information garnered through conventional means. This has also drawn questions into the solvency of emerging firms.

According to ESMA Chairman, Steven Maijoor, in a recent statement on the supervision, "ESMA's aim is to enable crowdfunding to reach its potential as a source of finance, while ensuring that risks to users of crowdfunding platforms are identified and addressed in a proportionate and convergent way across the EU.”

"We believe that there are benefits both for investors as well as for platforms by operating inside rather than outside the regulated space," Maijoor added.