Deloitte Legal and FinanceEstonia drafted a Crowdfunding Best Practice

Law Firm Deloitte Legal and FinanceEstonia have drafted a Crowdfunding Best Practice, which aims to turn the ever increasingly popular crowdfunding platform providers´ activities more transparent for the clients and investors.

"In establishing the Crowdfunding Best Practice the objective was to avoid suffocating the crowdfunding platform providers with overly cumbersome requirements. The initiative aims to support the sector´s growth by establishing a simple, light-touch and flexible framework to leave breathing space to foster innovation."

Merit Lind, Head of Law Firm Deloitte Legal and the Head of FinanceEstonia Crowdfunding Expert Group

The Best Practice is a market-driven instrument, which was developed at the initiative of the crowdfunding platforms and seeks to create a self-regulatory environment flexible enough to take into account all types of crowdfunding business models. It provides guidance to the platforms on how to increase the transparency and clarity level of their activities. The Best Practice will not substitute the obligation to comply with the legal acts that are applicable depending on the actual business model of each platform.

It is mainly the investors and clients that will benefit from the Best Practice. “If a crowdfunding portal provider has joined the Best Practice framework and fails to comply with its rules or explain non-compliance, the investors will have more information to decide on the credibility of the particular platform provider,” says Lind from Deloitte Legal. Crowdfunding platform providers that join the Best Practice, confirm their willingness to increase the transparency level of their activities for the benefit of investors. As we are talking about investing, it is necessary to be frank with the investors on the related risks,” she adds.

The initiative is also acknowledged by the Ministry of Finance. “The creation of a market-driven Best Practice only proves that responsible service providers do not always require state interference. National or even EU-level regulatory instruments might primarily be important for enabling cross-border activities in this sector. In such cases the regulatory framework would increase investor confidence and turn crowdinvestments into a credible alternative to traditional avenues,“ commented Ardo-Heiki Ingar from the Ministry of Finance.

All Estonian crowdfunding platform providers can apply to join the Best Practice. The first five Estonian crowdfunding platforms joined the Crowdfunding Best Practice in May 2016 and were granted the Best Practice Labels at Law Firm Deloitte Legal new economy seminar “The State and Future of Crowdfunding”. The platforms receiving the labels were: Bondora Capital, Crowdestate, Estateguru, Fundwise ning Investly Holding.

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