On 15 November 2019, the Cyprus Securities and Exchange Commission published a consultation paper in relation to a proposed regulatory framework for investment-based crowdfunding through the issuance of transferable securities. The proposed framework excludes loan-based, reward-based and donation-based crowdfunding.

The consultation paper states that crowdfunding serves as an alternative method to bank financing, through which small and medium enterprises (SMEs) have access to funding by means of loans or issuance of transferable securities (typically shares or debt instruments). This access point is typically provided by an internet-based electronic information system, or a platform, whereby the crowdfunding service provider matches SMEs seeking financing with the interests of those funding investors – and in return for financing a business interest – a potential economic return is generated.

The consultation paper includes a draft of the proposed legislation, referred to as the Crowdfunding Directive. The Crowdfunding Directive is comprised of a set of secondary rules for investment-based crowdfunding to be issued under the Investment Services and Activities and Regulated Markets Law, the legislation transposing the provisions of MiFID II into local law. The proposed Crowdfunding Directive is stated to be complementary to obligations under MiFID II, including in respect of conduct of business rules, management of conflict of interests, safekeeping of client assets and client funds and product governance.

Interested parties may submit their comments to the CySEC Policy Department by email at policy@cysec.gov.cy. The submission of comments should be made no later than 2 December 2019. The subject of the email should have the following form: “Consultation Paper (2019 - 03) – [insert the Name of Organisation, Legal or Natural Person submitting the comments or views]”.

CySEC’s press release can be found here.

The Consulation Paper can be found here.