This content is from: Local Insights

Colombia: Crowdfunding legal framework

Technology plays a major role in the development of financing alternatives, and investors and consumers are eager to access funds in a more expeditious and efficient manner. In fact, investors would relish the efficiency of tasks such as due diligence and disbursement being possible at the click of a link, without having to enter into complex negotiations and long drafting sessions. This new reality brings with it new challenges, not only for financial entities but also for regulators and lawyers. Fintech is a reality that imposes financial regulations and allows business to evolve.

With this in mind, the Colombian Ministry of Finance is preparing a legal framework for financial crowdfunding to be issued by the end of 2017. This legal framework is aimed at initiatives for the financing of small and medium sized businesses that cannot access traditional financing. Although Colombia has already been involved in several crowdfunding initiatives, specifically donation-based crowdfunding, the Colombian regulator has announced its intention to regulate lending and equity crowdfunding. This announcement was made in the first quarter of 2017 through a technical document published for comment. The technical document stated that regulating crowdfunding is an obligation, and that a supervised and registered entity would be included as part of the structure. The latter is required since raising money from the public at large is a regulated activity that can be carried out only by financial entities. In fact, raising money from the public at large without complying with the prevailing legal requirements can come with criminal consequences.

Even though Colombia's financial regulation is being challenged by fintech, we are not ready to allow retail business to transact directly without supervision. Therefore, the Ministry of Finance is striving to find a middle ground, trying to address the demands of the market while maintaining adequate levels of intervention.

The new regulation for crowdfunding will add value to the existing regulation. Hopefully, it will create easier alternatives or sources of financing, mostly for small and medium sized projects, at a lower cost and with attractive returns for potential investors. Financial entities will have to adapt their business models to interact with the new necessities of the market, which means asking for efficient services at a lower cost. For lawyers, this is an opportunity for merging legal knowledge and technology, simplifying processes and making law accessible to more people.

Carlos-FradiqueCarlos Fradique-Méndez and
Lyana de Luca
Brigard & Urrutia

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