The Crowdfunding Phenomenon
Crowdfunding is a form of raising funds from a wide audience (individuals and/or legal entities) through an online platform.
There are several models: equity/loan-based, which requires licensing; donor and reward-based, which generally do not require licensing; and peer-to-peer lending, which is regulated as a lending or investment activity.
Crowdfunding Licensing in Europe (EU/EEA)
The governing act since November 10, 2021 is EU Regulation 2020/1503 – the European Crowdfunding Service Providers Regulation (ECSPR). This regulation unified the regulation of investment and credit crowdfunding across the EU. The ECSPR applies to platforms providing access to crowdfunding in securities and debt instruments, operating at a volume of up to €5 million per year (for amounts exceeding this amount, the EU prospectus regime applies), and serving both individual and legal investors.
Crowdfunding is a form of raising funds from a wide audience (individuals and/or legal entities) through an online platform.
There are several models: equity/loan-based, which requires licensing; donor and reward-based, which generally do not require licensing; and peer-to-peer lending, which is regulated as a lending or investment activity.
Crowdfunding Licensing in Europe (EU/EEA)
The governing act since November 10, 2021 is EU Regulation 2020/1503 – the European Crowdfunding Service Providers Regulation (ECSPR). This regulation unified the regulation of investment and credit crowdfunding across the EU. The ECSPR applies to platforms providing access to crowdfunding in securities and debt instruments, operating at a volume of up to €5 million per year (for amounts exceeding this amount, the EU prospectus regime applies), and serving both individual and legal investors.
Requirements for an ECSPR license include registering a legal entity in the EU, submitting an application to a national regulator (e.g., BaFin in Germany or AMF in France), having an internal risk management policy, anti-money laundering and counter-terrorist financing procedures, complaint mechanisms, financial soundness, appointing a compliance officer, conducting investor due diligence (KYC) and appropriateness tests, publishing annual reports, and ensuring public reporting on the platform. Passporting is also possible—providing services throughout the EU/EEA.
Violations of the regulation are subject to fines of up to 5% of annual turnover or a ban on operations.
Singapore and Asia
In Singapore, the regulator is the Monetary Authority of Singapore (MAS). Crowdfunding platforms offering equity or debt instruments are required to obtain a Capital Markets Services License (CMSL) if their activities involve offering investment instruments. Crowdlending requires a Moneylending License. Platforms must comply with AML/CTF regulations consistent with FATF standards and ensure investor protection and disclosure. MAS provides the opportunity to launch crowdfunding projects in sandbox mode with simplified regulations at the initial stage.
In Hong Kong, regulation is carried out by the Securities and Futures Commission (SFC). If a platform offers securities or collective investment schemes, a brokerage license (Type 1 or Type 4) is required. Crowdfunding falls under the supervision of banking or financial activities. Donor and reward crowdfunding are not licensed unless there is an investment element.
In Japan, crowdfunding is regulated by the Financial Instruments and Exchange Act (FIEA). Platforms must be registered as Type II Financial Instruments Business Operators with the Financial Services Agency (FSA). The law imposes strict requirements for the protection of retail investors, financial reporting, and IT security.
Offshore Jurisdictions
Many offshore centers offer less stringent crowdfunding regulations, but it's important to consider the risks when working with investors from the EU and US, as they may be subject to extraterritorial regulation.
In jurisdictions such as the Bahamas, Belize, and the British Virgin Islands, donation-based and reward-based crowdfunding are generally unregulated. Platforms that offer investment (equity or debt) must obtain a license from the Financial Services Commission (FSC), have authorized capital ranging from $25,000 to $100,000, and appoint a compliance officer and a local representative.
The advantages of such jurisdictions include low taxes, minimal audit and reporting requirements, and the possibility of anonymous beneficial ownership. However, risks include the inability to legally serve EU and US residents without violating their laws, as well as the complex process of opening bank accounts.
Jurisdiction Comparison
In Europe, a license is mandatory, regulated by the ECSPR and national regulators, passporting is required, AML/CTF requirements are strict, and controls are high.
In Singapore, a license is required for investment crowdfunding (CMSL from MAS), passporting is not required, AML/CTF requirements are met, and controls are high.
In Hong Kong, a license is required for investment activities, regulated by the SFC, with medium-high controls.
In Japan, a license is issued by the FSA, with a high level of investor protection and controls.
In offshore jurisdictions, a license is required for investment platforms, regulation is minimal or partial, controls are low-medium, and passporting is not required.
Conclusion and Recommendations
The choice of jurisdiction depends on the crowdfunding model: investment crowdfunding is best conducted in the EU, Singapore, or Hong Kong, while donor crowdfunding can be implemented through offshore companies or less regulated jurisdictions. Serving investors from countries with strict regulations (the EU, the US) without the appropriate permits should be avoided.
AML and KYC procedures are mandatory in all relevant jurisdictions.
Offshore licenses are suitable for global projects, but not for publicly soliciting investment from the EU or the US.
Violations of the regulation are subject to fines of up to 5% of annual turnover or a ban on operations.
Singapore and Asia
In Singapore, the regulator is the Monetary Authority of Singapore (MAS). Crowdfunding platforms offering equity or debt instruments are required to obtain a Capital Markets Services License (CMSL) if their activities involve offering investment instruments. Crowdlending requires a Moneylending License. Platforms must comply with AML/CTF regulations consistent with FATF standards and ensure investor protection and disclosure. MAS provides the opportunity to launch crowdfunding projects in sandbox mode with simplified regulations at the initial stage.
In Hong Kong, regulation is carried out by the Securities and Futures Commission (SFC). If a platform offers securities or collective investment schemes, a brokerage license (Type 1 or Type 4) is required. Crowdfunding falls under the supervision of banking or financial activities. Donor and reward crowdfunding are not licensed unless there is an investment element.
In Japan, crowdfunding is regulated by the Financial Instruments and Exchange Act (FIEA). Platforms must be registered as Type II Financial Instruments Business Operators with the Financial Services Agency (FSA). The law imposes strict requirements for the protection of retail investors, financial reporting, and IT security.
Offshore Jurisdictions
Many offshore centers offer less stringent crowdfunding regulations, but it's important to consider the risks when working with investors from the EU and US, as they may be subject to extraterritorial regulation.
In jurisdictions such as the Bahamas, Belize, and the British Virgin Islands, donation-based and reward-based crowdfunding are generally unregulated. Platforms that offer investment (equity or debt) must obtain a license from the Financial Services Commission (FSC), have authorized capital ranging from $25,000 to $100,000, and appoint a compliance officer and a local representative.
The advantages of such jurisdictions include low taxes, minimal audit and reporting requirements, and the possibility of anonymous beneficial ownership. However, risks include the inability to legally serve EU and US residents without violating their laws, as well as the complex process of opening bank accounts.
Jurisdiction Comparison
In Europe, a license is mandatory, regulated by the ECSPR and national regulators, passporting is required, AML/CTF requirements are strict, and controls are high.
In Singapore, a license is required for investment crowdfunding (CMSL from MAS), passporting is not required, AML/CTF requirements are met, and controls are high.
In Hong Kong, a license is required for investment activities, regulated by the SFC, with medium-high controls.
In Japan, a license is issued by the FSA, with a high level of investor protection and controls.
In offshore jurisdictions, a license is required for investment platforms, regulation is minimal or partial, controls are low-medium, and passporting is not required.
Conclusion and Recommendations
The choice of jurisdiction depends on the crowdfunding model: investment crowdfunding is best conducted in the EU, Singapore, or Hong Kong, while donor crowdfunding can be implemented through offshore companies or less regulated jurisdictions. Serving investors from countries with strict regulations (the EU, the US) without the appropriate permits should be avoided.
AML and KYC procedures are mandatory in all relevant jurisdictions.
Offshore licenses are suitable for global projects, but not for publicly soliciting investment from the EU or the US.
Crowdfunding licensing