Investment platforms: does it work for crowdfunding?

The number of ways to make investments is growing. Technology makes investing faster and easier. One of the ways are investment platforms: the parties may not know each other at all, but be ready to finance someone else's project. The operator establishes investment platforms, becoming a meeting point for investors and businesses needing resources. In this article you can read about the legal aspects of investment platforms.

Contents:

Who needs investment platforms?

Russian investment platforms (hereinafter referred to as platforms) can be considered a form of crowdfunding. In this activity, funds from users can be received with a commitment to return them in the future. The second option is to receive equity in return for your financial investments. Investment platforms in the common sense are the widely used online crowd-lending platforms (also crowdfunding or p2b). Several large platforms have long existed in Russia. Thanks to them, businesses can raise funds from citizens, without banks in the classic loan chain.

How do Russian laws regulate investment platforms?

There are two ways to regulate platforms:

Existing banking legislation (UK approach);
Specific regulation for crowdfunding (Italian and German approach).

Platforms are regulated by the very recent Law of 2019 (Federal Law of August 2, 2019 No. 259-FZ "About investment attraction with use of investment platforms). Both a citizen and an organisation can become an investor. They can contribute funds to Russian individual entrepreneurs and organisations. The requirements for them are established by the operator itself.
There are 3 forms of investments available within the platform:

Securities. This method existed before and involves significant costs for both parties, so other methods are usually preferred;
Loan agreement;
Utility digital rights.

New wording, same concept: what are utility digital rights?

Despite the absolute innovativeness of the institution for Russian law, ideologically (and even etymologically) there is a well-known concept of utilitarian tokens behind. These rights are generated within the platform itself arising from the agreement concluded. These may include rights to demand the transfer of:

goods (property);
IP rights;
works or services.

Despite the absolute innovativeness of the institution for Russian law, ideologically (and even etymologically) there is a well-known concept of utilitarian tokens behind.

Limitations on the volume of transactions on the platform

The government sets strict restrictions for platform participants. Each company can receive no more than RUB 1 billion. PJSCs that sell tokens can receive more. Non-qualified investors may dispose of no more than RUB 600,000 per year in a single platform.

Statutory requirements for the operator of an investment platform

The minimum authorised capital is RUB 5 million. The operator may simultaneously carry out activities involving clearing, brokerage, dealing, custody and securities management.

The duties of the platform include

The management of the contracts register on the platform;
Ensuring the security of transaction information.

The operator is liable if the loss was caused by

Disclosure of false information about the platform
Violation of internal rules or legal requirements.

The operator is required to open a nominee account and the range of transactions through the account is strictly limited. For example, it is allowed to transfer from this account to the

investor,
beneficiary of the investment only if certain conditions are met
transfer of remuneration to the operator itself.

How does investment via the platform work?

Step 1. The company that wants to raise funds makes an offer with the material conditions, the period of effectiveness and the minimum amount of funds per transaction.
Step 2. The investor accepts the offer, the possibility to withdraw is valid for 5 days.
Step 3. Funds are transferred from the nominal account to the company raising the investment. The maximum period for this operation is 3 days.

Thus investment platforms are among the most promising and already popular ways of investing. At the moment, there is a law, which only provides general provisions, leaving the investment platform operators the freedom to determine the rules by themselves. The requirements are related to the minimum authorised capital of the operator, restrictions on the amount of investment through the platforms, and some others. If you have any questions on establishment of an investment platform or raising funds via such platform please contact the lawyers of A4 Law Firm.