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Innovative funding solutions and business models related to payment services are the most common fields in which fintech companies in Germany specialize. For several years regulators have been struggling to find a balance point in which investors, especially retail investors, are protected and innovative solutions may serve retail investors' interests. Finally, EU and German legislators desided that the regulatory requirements which are applied to investment business models can be generally (subject to limited privileges) applicable to collective investment schemes. The German legislators and BaFin apply the same way the technology-neutral principle of “same business, same risk, same regulation” to digital markets in general. Consequently, the exact amount of applicable requirements, particularly the assessment if a license requirement under the KWG or the WpIG may be applied, in general demands an in-depth analysis on the concrete business model and have to be reviewed on a case-by-case basis.1
Speaking of crowdfunding, in October 2020 the EU legislators signed an EU-wide regulation which started a comprehensive regulatory regime for EU crowdfunding service providers for business, the ECSPR, it is directly applied in all EU Member States as a single EU standard for lending-based and equity-based crowfunding since November 2021.1
Whether and which regulatory rules have to be applied for peer-to-peer-lending depends on the current business model. In general, crowdfunding supposes donations the investors make to support a specific project (crowd-sponsoring) is not subject to financial regulation. But if the investor gains profit from his or her investment; for example, by participating in future profits of the project (crowd investing) or by being compensated with or without interest (crowd-lending), special regulations are applied. These regulations can be divided in three groups: those falling under supervisory law, consumer law and capital market law. After 10 November 2021, the special regime for crowdfunding service providers under the ECSPR and the related provisions of the German law have apllied.2
It is possible that peer-to-peer lending in the form of crowd investing or crowd-lending may bring consequences under financial supervisory law for the lender, the borrower and the platform. The key concern is related to possible licensing requirements. Particularly, the licensing requirement for lending business must be taken into account. A license requirement is applied if the lender acts commercially or in a way that requires a commercially established business operation. It is enough if the lender has an intention to repeatedly engage in the lending business to gain profits.3
The taking of deposits commercially or on a scale that requires a commercially established business operation also requires a license. It is possible that licenses may become relevant for all involved parties; for example, the platform in a case when it keeps the funds extended by the lenders until the funds are transferred to borrowers. If the platform functions like this and transfers funds from the investors to the borrowers, the platform may also need to get a license from the ZAG for providing payment services. The investors who provide the funds extended to a single or several borrowers may also require the license from the KWG. Even more, the borrowers may also require licensing for conducting the deposit-taking business when they are supported by the investors or the platform.1
Taking into account these regulatory restrictions, peer-to-peer-lending business models in Germany often need a fronting bank that has a license for the lending and deposit-taking business. These models suppose that the fronting bank extends the loans to the borrowers, and the bank refinances the loans by selling the repayment claims which arise under them for on-selling to investors or right to investors who eventually receive the repayment claim against the borrower. All business transactions between the involved parties concerning the extension of a loan are interdependent by way of preconditions. Thus, the bank has to extend the loan only if investors have committed to provide enough funds for the purchase of the repayment claims arising under the loan. The platform – usually a fintech company – acts in this model like a broker that brings together investors and borrowers.1
This structure is not usually important for the investors because they get only a repayment claim, which does not require a license, given that the acquisitions do not happen under a framework agreement. In the such case, a license for providing factoring business can be critical. For the borrowers, this model is also quite simple. One might decide if they should engage in deposit-taking business. However, according to German law borrowing funds from a licensed bank does not constitute deposit-taking in general. In this model the fronting bank has the required licenses so the remaining problem is if the platform performs business operations which a subjected to license.1
In November 2021, the EU introduced a single regulatory regime set out in the ECSPR; all crowdfunding service providers there are subjected to it. The main point of the ECSPR is the “crowdfunding service” described as the matching of business funding interests of investors and project owners through the use of a crowdfunding platform and which is composed of the facilitation of granting loans or placing without a firm commitment basis, as referred to in MiFID II, of transferable securities and accepted instruments for crowdfunding purposes issued by project owners or a special purpose vehicle, and the reception and transmission of client orders in relation to those transferable securities and accepted instruments for crowdfunding purposes.1
These activities are outside the scope of the ECSPR:
In this case, the EU Prospectus Regulation has been amended respectively so that the obligation to publish a prospectus does not apply to an offer of securities to the public from a crowdfunding service provider authorized under the ECSPR provided that it does not exceed the above threshold. A correspondent clarifying provision referencing the exemption under the EU Prospectus Regulation has been included in the German WpPG.1
Pursuant to the ECSPR, crowdfunding services providers have to apply for authorization from the governmental supervisory authority in their EU Member State and they need to be registered in a European Securities and Markets Authority (ESMA) register comprising all operating crowdfunding platforms. The ECSPR prescribes single requirements on the provision of crowdfunding services, including prudential requirements (safeguards of no less than €25,000 in general), effective and reasonable management, minimum due diligence requirements in relation to project owners to be offered on the crowfunding platform and requirements on complaints handling and conflicts of interest. ESMA has issued 12 draft regulatory technical standards under the ECSPR on topics like complaints handling, conflicts of interest, application for authorization, key investment information and information and reporting obligations, which are in the consultation phase at the moment.1
It is considered that the ECSPR will support the development of crowfunding platforms and the provision of cross-border crowdfunding services. But how the ECSPR will influence crowdfunding business remains to be seen in the future.1
In the European Union generally, and in Germany particularly comparatively strict consumer protection rules apply. Thus, a direct contract between the lender and the borrower brokered by a peer-to-peer lending platform prompts far-reaching information obligations for the lender under Section 491 et seq. of the BGB, provided that the lender operates commercially and the borrower is a consumer. Given the ordinary structure for peer-to-peer lending platforms in Germany supposes that the fronting bank included in the structure must typically comply with these obligations.1
Even more, given that peer-to-peer lending platforms usually provide their services online, the consumer protection rules on distance selling are applied (Section 312a et seq. of the BGB). These rules are based on EU law and generally are same in all EU Member States.1
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