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Iron arm in ‘crowdfunding’ in Portugal

Collaborative financing companies in Portugal are not happy with the rules for financial crowdfunding: they complain of restrictive rules, such as investment ceilings by private investors, against the laws of other countries and claim equivalent treatment. Represented by the Fintech Association and Insurtech Portugal (AFIP), electronic platforms – which allow individual investors to finance companies (mainly startups and SMEs) through loans or equity participation – want to streamline the process and remove restrictions that are considered harmful to the growth of business in Portugal. Currently there are only six crowdfunding intermediaries in the country, who have accumulated a funding volume of less than € 9 million last year.

To criticism, the market regulator argues that its “first mission is to protect investors.” The Securities Market Commission (CMVM), which regulates this activity, does not close the door to minor adjustments to the rules created in 2016 and in force since the beginning of this year – but only after the European regulation for collaborative financing, currently in discussion, come into force. It aims to move forward with a harmonized regime for crowdfunding and to create a ‘European passport’ so that these platforms can be established and provide services in any Member State without being subject to national legislation.AFIP warns that foreign platforms may be more developed than Portuguese platforms when they enter Portugal because they have been subject to less restrictive regulation.


Platforms such as Raize, ClicInvest and Portugal Crowd establish the bridge between investors and companies that need financing, at an interest rate and at their risk. João Machado Mota, AFIP administrator, told Expresso that the growth of national crowdfunding is threatened by “very restrictive limits to the financing of private investors”, which can not exceed € 3,000 per offer and € 10,000 for a year, with a few exceptions, as in the case of investors with annual income of € 70,000 or more.He believes that these amounts limit the turnover of an activity that could “contribute to eliminating the systemic risk of the financial sector” by being an alternative to it.

According to the CMVM, the limit imposed on the financing by private individuals welcomes the comments received in the public consultation to the proposal of regulation (nº 1/2016), which has reduced it from € 100 thousand to € 70 thousand the amount of annual income from which the limits on investment do not apply, “without compromising the level of investor protection.” The fact that “only a small fraction of the Portuguese population has an annual income equal to or greater than € 100 thousand”, as he told Expresso.

Another criticism pointed out by AFIP relates to the requirement for investors to fill out several forms, each time they make an investment, to report the total amount invested in the last 12 months. “It is a redundant obligation,” says Machado Mota, adding that it also hinders the automation of investments (allowed for loans). The redundancy that he speaks of has to do with the fact that “financing is done through the banking circuit (such as ATM, credit card, transfer, Paypal and MBWay)”, which would allow to know how much was invested during a year. Just as, for the purpose of combating money laundering, it would be “perfectly possible to follow its track and its origin”. The CMVM admits, however, the possibility of alleviating these steps, using “alternatives that serve the same purpose and avoid repeating the procedure”.

The AFIP representative argues that the owners of the platforms should be able to invest in the projects they validate and disseminate because, in doing so, they would be giving “an incentive and confidence to the investors”. This possibility, prohibited by law, “hinders fundraising,” he finishes. In fact, the prohibition stems from the Securities Code and has, according to the regulator, the goal of preventing conflicts of interest, so no changes are anticipated.


The companies in the sector also complain that the sanctioning regime does not comply with proportionality criteria in relation to the amounts involved. That is to say, – because the turnover of the sector in Portugal is much lower than in other countries, such as Spain – the fines defined by law should reflect this reality. And they emphasize that the country has opted for fines closer to the maximum set in Europe.

The sanctioning regime related to the collaborative financing activity has three types of misconduct: mild, severe and very serious. Heavier fines can range from € 5,000 to € 1 million. The lighter ones are punishable by amounts between € 1000 and € 200,000. The CMVM justifies the option of the legislator by this sanctioning regime because the investors’ patrimony deserves a tutelage equivalent to that of the other financial institutions.

The market regulator also points out that collaborative financial financing generally entails some risks for lenders, such as “the existence of greater risks of capital loss, fraud due to the informational asymmetry between the platform and the investors and of failure due to to the incipient phase of the projects “. And warns of “the lack of training and financial literacy duties of employees of the managing bodies of crowdfunding companies”. The association that represents collaborative financial financing argues, in turn, that betting on financial literacy should be the first concern of the regulator to protect investors.


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Oliver Smith


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