Crowdfunding - the practice of financing a project or venture by seeking many small amounts of money from a large number of people, typically using an online platform - is a concept which is fast gaining popularity in many parts of the world. Recognising this and its inherent potential, the European Commission have launched a public consultation together with a set of frequently asked questions on the topic. 

The purpose of the consultation, according to the Commission’s press release accompanying the publication of the consultation paper on 3rd October 2013, is to seek the views of interested parties about crowdfunding, “its potential benefits, risks, and the design of an optimal policy framework to untap the potential of this new form of financing”.

Crowdfunding is used to raise money for a variety of purposes, from donations for charitable or other philanthropic initiatives to reward-based investment for start-up businesses. In a depressed world-wide economy, it is seen by many as having the potential to be a very useful tool for businesses and other projects to access finance in a cash-starved environment. The accessibility of the internet and social media makes its reach almost universal, a very different scenario from the traditional method of raising finance which generally involves seeking larger investments from a much more limited pool of potential investors.

The European Commission’s consultation paper covers all forms of crowdfunding and discusses how EU action, including what it describes as a range of “soft-law measures”, could be used to promote crowdfunding.

The ideas which the Commission is considering in order to unleash its full potential include raising public awareness of crowdfunding and ensuring that EU-wide access is given to crowdfunding platforms. 

As crowdfunding platforms offering debt and equity participation can give rise to regulatory law issues, for example under prospectus law, the Commission is also considering the extent to which crowdfunding should be subject to the existing regulatory framework set out in the Prospectus Directive, the Markets in Financial Instruments Directive, the Payments Services Directive and the Consumer Credit Directive. 

Apart from its many benefits, the consultation also addresses the risks and challenges of crowdfunding and the potential safeguards required to protect against illegal or undesirable practices in crowdfunding in the areas of fraud prevention, intellectual property protection and anti-money laundering.

The consultation is open to anyone who has a view on the topic and submissions will be accepted up until 31 December 2013.