Equity crowdfunding regulation

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Italy was the first European country to enact regulations for equity crowdfunding, introducing a comprehensive legal framework in 2012.
What are the main aims and objectives?

The 2012 equity crowdfunding legal framework was enacted primarily to foster the growth and development of innovative startups by providing them with a streamlined mechanism to raise capital from the public. The framework was designed to facilitate access to funding through online platforms, allowing startups to attract investments in a more informal and efficient manner. Key objectives included reducing bureaucratic barriers for new businesses, enhancing investor protection, and stimulating economic growth by encouraging investment in high-potential sectors.

How does the program work?

Under this framework, the Commissione Nazionale per le Società e la Borsa (CONSOB) was given the authority to determine and implement the operational measures for equity crowdfunding. The regulation stipulated that fundraising activities must be conducted through "online portals" managed by investment firms, banks, or entities authorized by CONSOB. These entities were required to meet specific integrity and professionalism standards.

Initially, the framework limited equity crowdfunding to innovative startups, with a goal of fostering their growth and development by providing easier access to capital. The regulation set a maximum fundraising threshold of €5 million per offer. To ensure investor protection, at least 5% of each campaign was required to be subscribed by "professional" investors, such as bank foundations, startup incubators, or experienced investors in crowdfunding campaigns.

The framework also mandated that issuers include clauses in their bylaws or articles of incorporation to guarantee investors' exit options in case of changes in controlling interests, such as tag-along or termination clauses. This provision aimed to protect retail investors participating in these high-risk investments.

To further safeguard investors, the regulation established a national registry for equity crowdfunding platforms and imposed disclosure obligations on both issuers and platforms. Additionally, private investors were given the right to withdraw from their investment within seven days of subscription, providing an extra layer of protection.

What is the overall cost?

There were no direct costs of implementing the framework. 

How was it implemented?

The 2012 equity crowdfunding legal framework in Italy was created through Decree-Law No. 179 of October 18, 2012 (commonly known as the "Growth Decree bis" or "Startup Act"), which was later converted into Law No. 221 of December 17, 2012. This framework marked Italy as the first country in Europe to adopt specific regulations for equity crowdfunding. It was part of a broader legislative effort aimed at fostering economic growth and supporting innovative startups by facilitating their access to capital through online platforms.

The framework introduced amendments to the Consolidated Law on Finance (Legislative Decree No. 58 of February 24, 1998), specifically Articles 50-quinquies and 100-ter. These articles established the legal foundation for managing online portals dedicated to raising venture capital and outlined the rules for public offers conducted exclusively through these platforms. The legislation allowed innovative startups to raise funds by offering shares to the public via authorized online portals, which were regulated by CONSOB (the Italian Companies and Exchange Commission). CONSOB was tasked with issuing detailed regulations to implement the law, ensuring compliance with integrity and professionalism standards for platform operators.

What impact has been measured?

Since its introduction in 2012, equity crowdfunding in Italy has experienced substantial growth:

  • As of June 2023, the total capital raised through Italian crowdfunding platforms reached €1.21 billion.
  • Specifically, €662 million was raised through equity-based platforms (including minibonds) and €551 million through lending-based platforms

The number of authorized equity crowdfunding platforms grew to 51 by June 2022

What lessons can be learned?
  1. Regulatory Innovation: Italy demonstrated that proactive regulation can foster innovation in alternative finance. By being the first European country to implement specific equity crowdfunding regulations, Italy positioned itself at the forefront of this emerging sector.
  2. Gradual Expansion of Eligibility: The initial framework was restrictive, limiting equity crowdfunding to innovative startups. However, Italy learned to gradually expand eligibility to include more types of companies: First to innovative SMEs; Then to all SMEs; Finally to all corporations. This gradual expansion allowed for controlled growth of the sector while adapting to market needs.
  3. Balancing Investor Protection and Market Growth: The framework implemented several measures to protect retail investors: Requiring professional investors to subscribe to 5% of each offering; Mandating disclosure obligations for issuers and platforms; Establishing a national registry for equity crowdfunding platforms. These protections helped build market confidence, though some were later deemed overly restrictive.
  4. Need for Regulatory Flexibility: The frequent amendments to the initial framework highlight the importance of regulatory flexibility in a rapidly evolving sector. Regulators must be willing to adapt rules as the market develops.
  5. Importance of Reducing Bureaucracy: Despite being pioneering, the initial regulations were considered complex and bureaucratic, involving many intermediaries. This likely hindered faster adoption and growth of equity crowdfunding in Italy.
  6. Platform Oversight is Key: The framework's focus on regulating and authorizing platforms, rather than individual offerings, proved to be an effective approach for overseeing the sector.
  7. European Harmonization Challenges: Italy's early adoption created challenges when harmonizing with later EU-wide regulations. This demonstrates the potential difficulties of being a regulatory first-mover in a multi-jurisdictional environment.
Notes + Additional Context

The implementation of new ECSP regulation led to a consolidation, with the number of authorized platforms decreasing to 33 by June 2024

CURATED BY

Chris Haley

Head of Research
United Kingdom