You are only allowed to be active in Austria on the basis of the Alternative Financing Act (AltFG; Alternativfinanzierungsgesetz), any activity in a foreign country would be subject to the respective national law on crowdfunding.
Previously it was possible to offer up to EUR 2 mn per year in investments (e.g. participation rights, qualified subordinated loans of AltFG platforms and up to EUR 2 mn in securities without a prospectus. Since the entry into force of the ECSPR, the intermediation of transferable securities on Internet platforms of under EUR 5 million is generally restricted to licensed crowdfunding service providers. Platform operators are required to hold a business licence commercial financial advice. The local administrative authority is responsible for supervising their obligations under the AltFG.
Platform operators are in particular to the following obligations as an “Internet platform” under the AltFG:
- Determination of identity of issuers and investors
- Obligations for the prevention of money laundering and terrorist financing in accordance with the Financial Markets Anti-Money Laundering Act (FM-GwG; Finanzmarkt-Geldwäschegesetz) or Articles 365m to 365z of the Trade Code (GewO 1994; Gewerbeordnung 1994)
- information requirements, e.g. About selection criteria applied to projects and fees
- scrutinising the issuer’s AltFG information document for completeness, comprehensibility and consistency, provided that it was not checked by a tax adviser (or similar vocational groups)
- Risk information
- Obligations for avoiding conflicts of interest
Platforms under the AltFG are not allowed to settle payments, ie. to receive and transmit them onwards on their own account. Platforms therefore often cooperate with payment service providers who handle the settlement of payments.
The operator of the project/issued also has obligations under the AltFG:
- Publication of an information document under the Alternative Financing Information Regulation (AltFG-InfoV)
- Investor protection: a maximum of EUR 5,000 may be received from a retail investor per project per year, unless the retail investor makes separate declarations.
- Determining the investor’s identity, in the case of an Internet platform not being used
- Measures for the prevention of money laundering and terrorist financing pursuant to Articles 365m to 365z of the Commercial Code 1994 (GewO 1994; Gewerbeordnung 1994)
- The right to withdraw for consumers
- Clearly recognisable, correct and non-misleading advertisements
- Checking of the project information by tax advisers or similar professions or checking by the crowdfunding platform for completeness, comprehensibility and consistency.
To date issuers frequently used qualified subordinated loans. Qualified subordinated loans are only those that have qualified (“double”) subordination, which is defined in a corresponding subordination clause. Loans are otherwise the subject matter of lending transactions, see below. More detailed information about qualified subordinated loans can be found here.
It is therefore fundamental to know whether or not a crowdfunding instrument is a security for the legal requirements for a platform and a project. It does not depend on the designation used. In this way a participation right that is securitised is a security, namely a participation certificate: it is standardised and easily transferable. When instruments are digitalised, such as the tokenisation of a participation right, a security may therefore be created (the term security token is also used). It is then usually a crowdfunding platform with securities that required authorisation – see above.
When does a transferable security as defined in Regulation (EU) 2017/1129 / WAG 2018 exist?
For a transferable security as defined in Regulation (EU) 2017/1129 (the Prospectus Regulation) to exist generally the following criteria must simultaneously occur:
- “Embodiment” of the raw: the right is dependent on the possession of the transferable security. A classical securitisation in the form of a (global) certificate is not necessary according to the prevailing opinion for the definition of a transferable security under European law (Kalss/Oppitz/Zollner, Kapitalmarktrecht² Article 11 No. 15; Zivny, KMG² Article 1 MN 69).
- Tradeability on the capital market: The transferable securities are designed identically in large quantities and are substitutable between one another (standardisation). Transferable securities may be transferred and traded without any restriction (transferability). It must be at least generally possible for the transferable securities to be traded on a capital market, although a specific listing or specific inclusion in trading is not necessary (tradability on a capital market in a narrower context).
- Comparability with shares, bonds or similar transferable securities (see the definition in the WAG 2018): The European legislator has standardised three types of transferable securities. The list includes shares, bonds and other similarly designed forms. A general comparability of these standardised types is required.
- No exception: certain instruments on the other hand are not covered by the term transferable security, e.g. certain payment instruments, bills of exchange, savings account books or money-market instruments.
Loans, projects with an unconditional claim to repayment
A platform would theoretically also be allowed to mediate loans if it held a business licence for acting as a commercial financial adviser. However, under no circumstances are the users of the platform allowed to conduct commercial lending business under the BWG.
In contrast in cases of a crowd loan, the issuer usually conducts deposit-taking business that requires a licence under the BWG. The intermediation by the platform would also be subject to licensing requirements. Both the platform as well as the project would be conducting banking transactions. The platform’s business licence for credit intermediation would not change anything. Under the previous legal situation in Austria credit intermediation platforms were practically impossible. The ECSPR has now made credit intermediation platforms a possibility. Under its scope of application the investors are also able to grant loans on an ongoing basis without having a separate authorisation. This means that operators of credit intermediation platforms are required to hold an FMA authorisation under the Regulation as European crowdfunding service providers.
A note about qualified subordinated loans is also relevant at this juncture: Qualified subordinated loans are only those that have qualified (“double”) subordination, which is defined in a corresponding subordination clause. These are then not loans in the classical sense, but corporate risk financing instruments. More detailed information about subordinated loans can be found here.
Projects without operational activity, delineation in the case of real estate projects
In some forms, crowd investing projects may constitute alternative investment funds (AIFs) as defined in theAlternative Investment Fund Managers Act (AIFMG; Alternative Investmentfonds Manager-Gesetz). In that case there an obligation for the manager of the AIF to be licensed or registered.
In the case of projects, in which capital is for example invested in other companies or in one or more properties, an AIF may exist (for further information see: FAQ on the application of the AIFMG – available in German only). This is especially the case where the objective from pooling the capital of the crowd is a joint return, and the project company is not predominantly operational. Operational activities as a rule are the development and construction of real estate, but not merely acquiring, renting and leasing or selling of real estate. Even where there is only a single property, this may lead to an AIF existing. In such cases, the intermediation through the platform may also constitute an activity requiring a licence (brokerage of units in open-ended AIFs pursuant to Article 3 para. 2 no. 3 WAG 2018).