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CHALLENGES OF THE CROWDFUNDING REGULATION

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Balancing the generation and protection of trust regarding the incentives and stimuli that an expanding business requires is a part of the greater challenge derived from the so – called ‘crowdfunding’.

Decree 1357 of 2018 is the starting point of the regulatory framework of the collaborative funding or ‘crowdfunding’ activity in Colombia, legitimating it as a funding alternative for small and medium business enterprises, or ‘SMES’.

Even though in the last few years the ‘crowdfunding’ has positioned itself as a novel alternative for enterprises with limited financing sources, the regulation and inclusion by the Ministry of Finance and Public Credit of the ‘crowdfunding’ in the regulation of the securities market has changed the way in which this model is perceived.

For example, trust has been generated and there has been a boost for the formalization of this financing mode that, prior to the aforementioned regulation, and excepting when it was being structured through donations, fell on a gray area that was even compared with the criminal activity of mass and habitual intake of money from the public and with the public offer of securities without due authorization.

The simplification and flexibilization of the capacities required, among other things, to be a receiver of funds, is a strategy to promote the access to the capital market and to increase the financial deepening through this novel and flexible model.

Notwithstanding the foregoing, the secondary regulation by the Financial Superintendence of Colombia (‘SFC’) to develop the operativeness of this model, is one of the great challenges and it will be a decisive factor regarding the implementation and reception thereof.

The legal framework of the ‘crowdfunding’ establishes general guidelines for its implementation; however, there are aspects that must be regulated and detailed by the ‘SFC’ in an assertive manner. The foregoing in order to balance the demands that seek to generate trust as well as to protect the market participants, regarding the incentives and flexibility required by an expanding business that intends to be formalized.

The impending regulation must seek to achieve balance between the transparency, the trust and the protection of the system and of those who make contributions, versus the boundaries and the charges imposed to the collaborative funding companies, the recipients of funds and the productive projects and, in general, the transactional costs related to the model.

Taking into account that the aforementioned decree authorizes and envisions the operation of ‘crowdfunding’, both through debt securities and through equity securities, the disclosure and supply of information is a fundamental issue to generate and strengthen the trust in the model.

In this sense, Decree 1357 of 2018 establishes rules regarding the initial provision and update of the information of the recipients and of the productive projects throughout the term of the funding.

The obligation requires the supply of information related to situations that substantially alter the conditions of the recipient enterprise or the productive project and establishes minimum standards for the supply thereof.

The foregoing without generating excessive burdens and preventing disproportionate costs for the recipients of the funds who, in terms of their size and corporate infrastructure, cannot be compared with the issuers of securities registered with the National Securities’ and Issuers’ Registry whose securities are negotiate in the Colombian Stock Exchange andd who have quite detailed obligations regarding the disclosure of information to the ‘SFC’ and to the market.


LA REPÚBLICA

Author: Isabel Torres