Around the turn of the year, Dutch small and medium-sized businesses appeared to have raised about €170 million by means of crowdfunding. This represents a growth of no less than 33% compared to 2015 (€128 million).
In light of this growth and the crowdfunding sector slowly becoming mature, the Dutch Authority for the Financial Markets (“AFM”) intends to intensify supervision of this sector.
In 2016 the AFM performed an investigation among crowdfunding investors. This investigation revealed that consumers who invest in crowdfunding projects systematically underestimate the risks involved in such investments.
The investigation also showed that consumers place great trust in the credit ratings that platforms attach to projects. This has inspired the AFM to take a closer look at the way in which platforms test the creditworthiness of projects, and the way in which they inform their clients about this.
The AFM concluded that platforms mainly point out the chances of investing through crowdfunding to consumers, but do not sufficiently point out the risks. For example, the risk of non-payment is often not clearly described.
As the crowdfunding sector is becoming mature, the AFM wishes the provision of information to improve. It is the responsibility of platforms to give consumers a realistic picture of the extent to which fundraisers comply with their obligations, says the AFM. The possible impact on the eventual return on investment must also be made clear on time.
The information provided should also show the proportion between repayments, payments of interest and payments of dividend on the one hand, and non-payments on the other hand. At present, a great number of platforms suffice by indicating the proportion between the number of non-payments and the total sum brokered by the platform. However, the AFM thinks this does not make the risks transparent enough. The total brokered sum will increase fast in a growing market, whereas non-payments will only come to light in the results in the long term.
Moreover, the information to be provided must be represented in a clear-cut form. For example, the AFM considers it undesirable that platforms place certain statistics online regularly without any kind of context and use these for marketing purposes.
The AFM therefore thinks that a platform must in any case present the following information on its website, so that consumers can easily form a picture of the chances and risks.
- The total brokered sum of the platform;
- The repayments and the interest paid out;
- The total of payment arrears and write-downs – with a specification;
- The sum of money that must still be repaid.
Conclusion and Follow-Up
At present, the crowdfunding sector is mostly self-regulating, despite the explicit wish of the AFM to subject the sector to more regulation. Nevertheless, the AFM expects that platforms will already take their responsibility now and will take over the guidelines offered. If full and correct information is provided, which is moreover presented in a clear way, this will contribute to a more realistic risk assessment by consumers. This is also in line with a more maturely operating sector.
In the spring of 2017 the AFM will assess whether platforms have taken up the gauntlet and have improved their provision of information.