PP Alert July 2013 (1): Crowdfunding a la Italia
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Alert: Italy heads the peloton with new crowdfunding rules

While the effort by the SEC to develop crowdfunding rules for the US market is stagnating and with Australia recently flagging its intention to conduct a consultation process to develop a best practice framework for crowd sourced equity funding as part of its digital economy strategy, Italy has broken ahead of the pack with the release of its crowdfunding regulations - "collection of venture capital by innovative startups through online portals". 

The regulations were recently finalised by Commissione Nazionale per le Societa e la Borsa ("CONSOB"), which is equivalent to the Australian financial regulator, ASIC.  The regulations developed by CONSOB are on the back of Law. 221 - the 'Growth Decree' passed in 2012.  The guidelines are broadly the following:
  • The maximum crowdfunding raise is capped at â‚¬5,000,000 per year;
  • The companies looking to use crowdfunding must be classified as innovative start-ups.  This means they need to meet a series of requirements such as, but not limited to, the incorporation history test, the no dividend test, the turnover test, the innovation test and the qualified employee test;
  • A minimum 5% participation by a professional investor in the crowdfunding raise. This is meant to provide a degree of comfort to retail investors that a party with appropriate investment experience has done their due diligence on the offer and believes on balance it fits the professional investor's requirements; 
  • The crowdfunding platform must be registered with CONSOB and an investment should be made through a CONSOB-registered broker/dealer to ensure compliance with AML and EU MiFID (subject to de minimus exemption); and
  • No ceiling investment participation imposed on retail investors.
This will certainly be a watching brief for Australia and no doubt any development in the US will also be closely scrutinised to determine whether it warrants replicating in the domestic capital raising market and expanding on the current exemptions (including the 20/12/2 rule).
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