On May 3 2011 the Dutch financial supervisors, the Dutch Authority of the Financial Markets and the Dutch Central Bank issued a joint statement on private initiatives known as crowd funding, crowd sourcing, or peer-to-peer financing. These initiatives are alternative forms of financing, offering private parties and companies a way to lend and borrower money without the involvement of a (licensed) bank.
The transactions are mostly carried out through a platform on the internet (in various manners and constructions). Such an internet platform serves as an intermediary, whereby money is being lenT from the party offering money (lender) to a party requesting money (the borrower) for a specific purpose. The purpose of the loan can either be of an idealistic nature or of a commercial nature, such as setting up a business. In case of a commercial loan the lending party will in most instances receive some sort of consideration such as interest or part of the proceeds in a newly-established business.
The mechanisms of the different crowd funding platforms vary, although there are some common features that characterise the crowd funding initiatives. Firstly, most platforms offer the potential lenders information on the purpose of the loan and the creditworthiness of the potential borrower. The criteria for creditworthiness are often, in different degrees of care and accuracy, based on information that the platform itself collected based on the identity and creditworthiness of the potential borrower. On the basis of this information and an assessment of the risks and expected return, a lender selects a matching borrower. Secondly, the platform plays an intermediary role in the financial transactions between the lender and borrower. It arranges the contractual basis of the transaction, the execution thereof as well as the collection of the agreed compensation and repayments.
The Dutch financial supervisors note in their joint statement that the objectives and structure of crowd funding initiatives differ. It is therefore not possible to determine beforehand which statutory provisions apply to the differently structured initiatives. Depending on the structure and purpose of a platform, it could be that certain provisions of the Dutch Act on Financial Supervision (AFS) must be considered. For example section 3:5 of the AFS prohibits parties to, outside of a restricted circle, attract, receive or have at their disposal repayable funds from others than professional market parties.
This provision could be relevant if the structure of a crowd funding platform is set up in such a way that the platform retains the funds too long and it could be argued that it has repayable funds at its disposal. This prohibition is intended to prevent private parties or companies other than banks from attracting funds from the public. Furthermore, it is forbidden under the AFS to act as a bank, that is to attract repayable funds from the public and to on-lend these funds, in the Netherlands without the required licence from the Dutch Central Bank.
Also, again depending on the setup and structure of the platform and the nature of the activities, other AFS provisions could be applicable for the platform or parties associated with the platform. Most of these provisions relate to AFS licence requirements, for example for the offering of investment objects (section 2:55 AFS), the offering of credit (section 2:60AFS), the offering of participations in an investment institution (section 2:65 AFS), or intermediary services with regard to credit, insurance or financial products (section 2:80 AFS). Furthermore, AFS provisions with respect to the rendering of investment services or activities (section 2:96 AFS) as well as certain (transparency) obligations, such as providing an approved prospectus when offering securities (section 5:2 AFS), could be applicable.
The Dutch financial supervisors caution market parties to carefully consider which (AFS) statutory provisions could be applicable to their activities.