Slovak National Bank publishes about crowdfunding

Creative Industry Forum, a Crowd-Fund-Port project partner, has published an article about crowd funding in a quarterly magazine, Biatec No. 5/2017, issued by the Slovak National Bank. Below is a brief summary:

The formation of modern crowdfunding can be dated to the early years of this century, when crowdfunding arose primarily as a creative industry tool that allowed consumers to support artists and their art through online appeal. The supporters often received the result of artistic activity as a reward. Today, crowdfunding has many forms and enables individuals to collectively support the development and production of new products and services, science and research, startups, small and medium enterprises (SMEs), as well as real estate products. Crowdfunding as an alternative financial instrument was found as a result of the development of financial technology (FinTech).

European Commission has recently published the results of its research of capital markets and has been following trends and crowdfunding with the goal to promote and create optimal environment for investors from the general public to use their own financial resources and invest them directly into both business and social projects. The European Commission is currently focusing on analyzing the conditions and needs of the environment as well as on identifying appropriate legal regulation for crowdfunding. The Central European Project CROWD-FUND-PORT, funded by Interreg Central Europe programme, in which Slovak Republic is involved, is also working to contribute to this goal. European Union has sought to remove barriers to cross-border investment, reduce financing costs and lay the foundation pillars for the capital markets by 2019. This should strengthen the economic and currency stability and help to absorb the downturns within the Eurozone. Crowdfunding has become an important and growing trend in capital markets and is one of the examples of financial innovations that can be expanded to deepen the capital markets and non-banking financing within the EU. From the Commission’s point of view, there are three crucial points to follow in order to develop alternative financing and to protect consumers:
1. What are the national regulations of crowdfunding, how do they support its development and what are the critical points of these regulations?
2. How can the Commission support the further development of FinTech alternative financing solutions, including crowdfunding?
3. What minimal level of transparency should the platforms meet and are the self-regulatory mechanisms sufficient?

The crowdfunding environment has been developing also in Slovakia for some time. At the beginning, only the donors/philanthropists and non-profit organizations had experience with crowd funding. At present, crowdfunding platforms are operating in each of the four core areas (donation, reward, lending, equity), and the development of digital technologies helped in creation of new tools that enhance the confidence among Slovak investors, entrepreneurs and the general public.

Crowdfunding in the European context is a crucial tool for SMEs as well. SMEs represent the majority of enterprises in nonfinancial sector and are the core engine of job creation and innovation in EU. However, it is the startups and SMEs who lack the financing for growth and development. Therefore, EU has seen crowdfunding as an opportunity to change this situation. Although European crowdfunding markets are among the largest crowdfunding markets worldwide, they are not evenly developed in the individual member states. Europe’s largest crowdfunding market is the United Kingdom (EUR 4.35 billion in 2015), followed by France (EUR 319 million in 2015), Germany (EUR 249 million in 2015) and the Netherlands (EUR 111 million in 2015). As you can see, states with a capital market tradition are among the leaders in the field of alternative financing, although several smaller states without a strong tradition of capital markets, such as Estonia, Finland and Lithuania have relevant volumes of alternative funding, especially in proportion to the population.

The article also talks about regulating of the individual forms of crowdfunding as opposed to regulating crowdfunding as a category. The Slovak National Bank recognizes the growing importance of crowdfunding and considers it important to keep the public informed about the benefits and risks of this activity as it is not under its supervision at this point. Crowdfunding is an activity that is not subject to the protection of bank deposits and investments.

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