Legal position of crowdfunding platforms
Operators of crowdfunding platforms must consider numerous potentially applicable regulations, governing such matters as electronic services, payment services, money laundering, securities trading, foreign exchange and banking.
The comments in this article are general and not addressed to any specific crowdfunding platform operating in Poland. In practice, many different models for the operation of such platforms may be imagined. The solutions selected for a specific platform may be of great legal importance and affect the legal classification of the services provided by the platform. Therefore we always recommend a thorough case-by-case analysis of the solutions used by the given platform.
Electronic services
Because crowdfunding platforms are operated over the internet, there is little doubt that the services provided by platform operators (even if they only boil down to introducing funders to beneficiaries) should generally qualify as services performed by electronic means for purposes of the Electronic Services Act. Therefore, operators of crowdfunding platforms should have a set of rules for performance of their services and also comply with the regulations for processing of the personal data of users of the platform, as specified in the Electronic Services Act.
Payment services
The role of operators of crowdfunding platforms may be described as intermediation in moving funds between funders and beneficiaries. A transfer of funds will generally occur in all crowdfunding models. This requires an analysis of the activity of operators of crowdfunding platforms in light of regulations governing payment services. This is because the very essence of regulated payment services is, broadly speaking, intermediation in the transfer of funds.
Operators of crowdfunding platforms typically collect money paid in by funders and then, after gathering a certain amount, transfer is to the intended beneficiary. Under certain crowdfunding models, there may also be intermediation in the transfer of funds from the beneficiaries to the funders (e.g. in loan-based crowdfunding). Clearly they are thereby performing a payment transaction within the meaning of the Payment Services Act, which implies that they are essentially performing a regulated payment service under Art. 3 of the act.
Even though intermediation by operators of crowdfunding platforms in payments will be a payment transaction for purposes of the Payment Services Act, it should be assumed that in most cases the operators will not have to obtain a licence to perform payment services. This is because most platforms will meet the conditions for application of the exception set forth in Art. 6(2) of the act. Under that provision, the requirements of the Payment Services Act do not apply to payment transactions between a payer and a payee through an agent seeking to conclude a specific contract or concluding the contract for or on behalf of the payer or payee. Clearly, by enabling beneficiaries to display their offers on a crowdfunding platform, the operator of the platform is performing actions seeking conclusion of a contract between the funder and the beneficiary.
But it should also be pointed out that reliance on this exception is controversial in practice. This has been pointed out by the European Commission, which is now reviewing the Payment Services Directive, which is the basis for Poland’s Payment Services Act. It is worth following the work of the Commission in this area, because any change in this exception in the directive could have a major impact on operators of crowdfunding platforms.
Money laundering
Any activity involving intermediation in the transfer of funds should be analysed in light of the requirements of the Act on Combating Money Laundering and Financing of Terrorism. From the perspective of an operator of a crowdfunding platform, it is crucial to determine whether it will be treated as an obligated institution under Art. 2(1) of the act.
At this time there are no regulations directly addressed to operators of crowdfunding platforms in this regard. Determining whether an operator is covered by the act will largely depend on the crowdfunding model it follows. It appears that the simplest and most common crowdfunding models used today (based on grants, prizes or advance sales) will generally not fall under the money laundering regulations. Operators using these models do not conduct regulated activity which would entail a necessity to comply with the act. The role of the operators in this case is limited to introducing funders and beneficiaries.
The situation of operators of platforms based on an equity or credit model appears more complicated. In this case, depending on the structure, the operator may be conducting regulated activity or activity in the nature of a financial institution for purposes of Art. 4(1)(7) of the Banking Law. Then the operator would be treated as an obligated institution under the Act on Combating Money Laundering and Financing of Terrorism and would be required to apply the preventive measures set forth in the act.
Moreover, an operator of a crowdfunding platform performing currency exchange (e.g. converting the funder’s currency into the beneficiary’s currency) will be subject to the act under the express coverage of currency exchange activity (Art. 2(1)(p)).
Foreign exchange law
Operators of crowdfunding platforms may perform currency exchange as part of their activity. This is particularly the case when the funder makes payment in a currency not accepted by the beneficiary. Then the operator converts the currency at a defined rate, and hence is conducting currency exchange activity.
However, because of the definitional limitation in Poland’s Foreign Exchange Law, this does not automatically mean that it is conducting bureau-de-change activity. The wording of the law limits the activity of bureaux-de-change to operations involving currencies in materialised form (banknotes and coins). And it should be assumed that in most if not all instances, currencies will be exchanged on a crowdfunding platform in dematerialised form. As long as that is the case, the operator will not be required to enter its activity in the register of bureaux-de-change maintained by the President of the National Bank of Poland.
Nonetheless, exchange of currencies on a crowdfunding platform, even in dematerialised form, may require the operator to comply with money laundering regulations.
Banking law
Under certain crowdfunding models, operation of platforms may resemble deposit activity performed by banks. This is particularly evident in credit crowdfunding, which can take various forms. In many instances, loans are granted directly from the funder to the beneficiary. Then the role of the platform operator is only to bring the two parties together, and thus is not regulated banking activity. The situation is more complicated in a model where the platform operator not only introduces the funder and the beneficiary but also aggregates monies from funders and then lends the money to the beneficiary. This model is designed to simplify the financing structure, because the beneficiary enters into only a single loan agreement with the operator rather than numerous loan agreements with the individual funders. But to make the loan, the operator uses the money gathered from funders. Then when the loan is repaid the operator distributes the proceeds pro rata among the funders. Under this model, the operations of the platform are de facto banking activity.
The platform collects money from funders (analogous to the deposit activity of banks), aggregates it, and then grants a loan to the beneficiary, financing the loan out of the money obtained from the funders (analogous to the lending activity of banks). The money collected from funders is exposed to risk in the sense that there is no guarantee that it will be repaid. Under Art. 171(1) of the Banking Law, anyone who conducts activity consisting of gathering money of other natural or legal persons or organisational units without legal personality in order to grant credit or loans or to expose the funds to risk in any other manner, without a licence, is subject to a fine of up to PLN 5,000,000 and imprisonment of up to 3 years.
This regulation shows that certain models of credit crowdfunding may bear a significant legal risk consisting of possible attempts to classify this type of crowdfunding as banking activity which requires a licence. Therefore, in practice, under current law, operators of platforms providing credit crowdfunding and wishing to avoid unnecessary administrative burdens or possible criminal liability, should seek to create models under which the financing takes place directly between the funder and the beneficiary. The role of the operator will then be limited to bringing together the funder and the beneficiary and forwarding the funds.
Securities trading
While there is no single model for operation of crowdfunding platforms, there are several functions platforms may perform for the participants in the process. The fundamental function is to bring together those seeking financing with investors, which may involve acting for the creator of the project by presenting its offer to potential investors, or introducing the person seeking financing to an investor so that they can enter into a transaction with one another. In the latter case, the platform does not represent or act for the creator of the concept. Additionally, platforms may provide both parties with the vehicle they need, i.e. the company through which the venture thought up by the designer will be carried out after obtaining the required funding from participants.
The scope of regulations applicable to platforms intermediating in organising equity crowdfunding will be determined to some degree by the type of share rights obtained by participants in exchange for providing funding. In simple terms, this will answer the question of whether the share rights received by the participants in the company that will carry out the venture qualify as financial instruments for purposes of the Trading in Financial Instruments Act.
If the crowdfunding is organised on the basis of a limited-liability company (sp. z o.o.), and the participants in the designer’s project are awarded shares (udziały) in such a company, then the activity of the platform will not be regulated activity, i.e. brokerage activity, regardless of which of the two approaches outlined above is followed.
But if the participants acquire stock (akcje), whether in a joint-stock company (SA) or a joint-stock limited partnership (SKA), then the activity of the platform will have to be examined on a case-by-case basis in light of the requirements for brokerage activity. This is because shares of stock are financial instruments for purpose of the Trading in Financial Instruments Act, and intermediation in trading thereof is subject to regulation under the act. Where the platform acts for the project designer by conducting a collection of money for the designer regarded as an offer of participation in a company, this may constitute brokerage activity consisting of offering financial instruments. However, if the role of the platform is to introduce the parties to the transaction so that they can enter into a transaction among themselves, this might be considered brokerage activity consisting of accepting and forwarding orders for acquisition of financial instruments.
Krzysztof Wojdyło, New Technologies and Payment Services practices, and Marcin Pietkiewicz, Capital Markets, Financial Institutions and New Technologies practices, Wardyński & Partners
This article is part of a report on crowdfunding (in Polish). An English summary is also available.
