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New rules to protect crowdfunding investors
Pic: Shutterstock

13 Jan 2022 / regulation Print

New rules to protect crowdfunding investors

The Central Bank of Ireland has unveiled a new regulatory regime for firms that provide crowdfunding services in Ireland.

The bank said that, while crowdfunding was bringing new funding possibilities for businesses, and new opportunities to invest, it was important to protect investors appropriately, and inform them about potential risks.

Under the new system, a number of provisions of the Consumer Protection Code 2012 will now apply to advertising by crowdfunding service providers.

Any advertisement must be “fair and clear”, and must not mislead, or seek to influence consumers unduly in their investment decisions.

Warning messages

Crowdfunding service providers must also display a “prominent” warning message on all advertisements. This will inform people that investment in crowdfunding projects entails risks – including the risk of partial or entire loss of the money invested.

Investors must also be warned that any investment is not covered by a deposit-guarantee scheme, or by an investor-compensation scheme.

The Central Bank’s new regulation will cover two main types of crowdfunding: investment-based crowdfunding, and peer-to-peer or loan-based crowdfunding.

The new framework will mean that service providers in these areas must be authorised. They will be subject to operational and prudential requirements, as well as investor-protection measures, according to the regulator.

‘Trust essential’

Gerry Cross (Central Bank's Director of Financial Regulation – Policy and Risk) said that crowdfunding provided a form of alternative finance for start-ups 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,” he stated.

The new framework comes as a result of an EU Regulation aimed at ensuring that providers are subject to consistent rules across the EU, in order to foster cross-border crowdfunding services.

Gazette Desk
Gazette.ie is the daily legal news site of the Law Society of Ireland