Crowdfunding and ESCP: Is a securities prospectus necessary?

This article is first on the Fin Law Blog appeared.

In its area of ​​application, the ECSP Regulation offers new possibilities for the content of securities. For example, the ordinance takes precedence over the national regulations on deposit business in the German Banking Act (KWG). This gives issuers the opportunity to issue non-subordinated financial instruments that are more attractive to investors. Especially with security token offerings, this can make the investment products to be offered more economically attractive.

Investment products that are to be offered on crowdfunding platforms regulated by the ECSP regulation can also be marketed across borders. The required sales documentation must then only meet the legal requirements of the ECSP regulation and can generally be used in all member states of the European Union for the public offer if the requirements of the ECSP for cross-border offers are complied with.

Instead of a securities information sheet (WIB) or securities prospectus, the issuer must create a key investment information sheet (KIIS) when issuing securities under the ECSP regulation. In terms of time, this has the advantage that BaFin does not have to approve the KIIS.

The crowdfunding service provider operating the crowdfunding platform must provide investors with the investment key information sheet prepared by the issuer. The ECSP regulation therefore stipulates the obligation for the swarm financing service provider to set up and apply appropriate procedures for checking the completeness, correctness and clarity of the information contained in the investment key information sheet.

If the crowdfunding service provider discovers any omissions, errors or inaccuracies in the investment key information document that could materially affect the expected return on investment, it must notify the issuer accordingly. It is then the task of the issuer to revise and adapt the KIIS accordingly. If the issuer does not comply with its obligation to adapt the key investment information sheet, the crowdfunding service provider can cancel the offer.

Guidelines for clear content specifications

In order for issuers and crowdfunding service providers to be able to fulfill their obligations with regard to the key investment information sheet, the European legislator has provided detailed requirements for the structure and content of a key investment information sheet. This must be provided on a separate, durable medium that is clearly distinguishable from marketing communications.

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In addition, it must not exceed six pages in DIN A4 format in printed form. Precise specifications were included in an accompanying ordinance as to how a sample basic investment information sheet is to be structured. According to this, sample warnings must first be put in front before an overview of the swarm financing offer is given.

Information about the issuer and the main features of the crowdfunding process as well as the conditions for raising capital must be presented below. Issuer-related and project-related risk factors must then be included in the investment information sheet.

Here, too, the European legislator specifies which risk factors are to be taken into account. According to this, information relevant to the investment decision about the securities on offer must be provided. The clear specifications help those involved to include all legally required information in the KIIS and thus make a valuable contribution to minimizing liability risks.