The Central Bank has announced details of its regulatory regime for crowdfunding in Ireland, as a new EU regulation comes into force.
The two prime requirements are that crowdfunding service providers must be authorised and subject to operational requirements, and measures to protect investors; and that they will be required to include appropriate warnings in their advertising to prospective investors.
The CBI stated that while crowdfunding brings new funding possibilities for businesses and new opportunities for investors, it is important that investors are appropriately protected and well informed as to the potential risks.
“A number of provisions of the Consumer Protection Code 2012 will now apply to advertising by crowdfunding service providers in Ireland," the regulator stated. "Among other requirements, any advertisement must be fair and clear and must not mislead or seek to influence consumers unduly in their investment decisions.”
Crowdfunding promoters will have to display a prominent warning message on all advertisements that investment in crowdfunding projects entails the risk of partial or entire loss of the money invested; and that any investment is not covered by a deposit guarantee scheme or by an investor compensation scheme.
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CBI director of financial regulation Gerry Cross said: “Crowdfunding provides a form of alternative finance for startups and SMEs, typically relying on small investments. Trust, confidence, and fair dealing are essential for any financial market or product. It is therefore vital that investors are made aware of the risks of any such investment.
“The Central Bank is now applying its advertising rules to crowdfunding service providers. This will ensure that Irish consumers receive the same protections in relation to advertising by crowdfunding service providers that we require of other financial service providers.”
Regulation (EU) 2020/1503 was originally published in October 2021 and set out the regulatory regime that was to apply from November 21. It covers two kinds of crowdfunding, investment-based crowdfunding and peer-to-peer/loan based crowdfunding.
