Crowdfunding – in the opinion of the Norwegian FSA
News | 07.12.17Corporate and M&A
Crowdfunding is a catch-all term for many different financial activities, in which entrepreneurs are using internet platforms to raise many small amounts of money from a large number of people. Crowdlending, debt-based crowdfunding, is also known as a form of peer-to-peer lending (P2P). Peer-to-peer lending is people lending directly to and from each other without using traditional financial institutions such as banks.
Lending platforms may link different lenders with a variety of borrowers – individuals and businesses. Up until now, the regulation of this kind of business activity has been unclear. However, on 4 December 2017, the Norwegian FSA published a circular on the statutory requirements for debt-based crowdfunding. The rules on crowdlending are not tightened as the circular is a guide based on the current legislation, but the circular is still an important reminder that the regulatory regime for the financial services sector is also applicable for crowdfunding.
The key elements of the circular
A loan intermediary will be an independent intermediary with the task to establish contact between a borrower and a lender. The requirements for a loan intermediary are, inter alia, (the list is not exhaustive):
- The loan intermediary may not provide advice to the lender or the borrower about the loan.
- The decision in connection with a loan must be made by the individual lender and borrower.
- The lender and the borrower must be familiar with each other's identity.
- The loan agreement must be entered into directly between each lender and each borrower, and the loan intermediary cannot be a party to the agreement.
- The loan intermediary shall not be granted a power of attorney to sign, enter into or renegotiate the loan agreement on behalf of the lender or the borrower.
- The loan intermediary shall ensure that repayments from the borrower are paid to the lender immediately.
If the platform is not deemed a loan intermediary, the platform must obtain a license, as a bank or financial institution. The circular does not include a guideline on the comprehensive rules in connection with such a license.
The circular also includes guidance for loan intermediaries with the right to receive means of payment and requirements for e lenders lending business. The circular in Norwegian can be found here.
We have experience related to regulatory matters for the financial services sector and can provide the necessary assistance in assessing which type of requirements apply for your business.