A critical analysis of crowdfunding and its applicable regulation

Abstract

Crowdfunding is quite popular within the European Union and the US, however, it is critically under-studied and misunderstood in other regions, particularly in Malta. This gap in literature is unfortunate as crowdfunding assists start-ups to obtain capital at lower cost, opens new niches and increases economic growth. Notwithstanding these benefits, crowdfunding is also associated with a number of challenges, including the potential of fraud. This study analysed crowdfunding and the European regulatory status quo. It also highlighted best practices implemented in Member States and the framework applied in the US. Furthermore, the research studied the local perception of introducing crowdfunding and the legal implications under Maltese Laws. This was conducted through semi-structured interviews with key stakeholders. From this research, it was found that no harmonised framework is in place and that the European legislation was not designed with the crowdfunding industry in mind. Furthermore, this study also found that the European Commission is undergoing consultation with Member States to discuss the way forward on how to best safeguard the interest of the retail investor and enhance the growth of the industry. Differences were also noted when the findings were compared with the literature discussed in chapter two. The research study shows that being a conservative community Malta did not suffer any major crisis in the banking system. However, when compared to other European Union Member States, we still lack behind in innovation, entrepreneurship and competitiveness that stimulate economic growth and create employment. The main implications for regulators are the drafting of a bespoken rulebook that aims to protect small investors and the implementation of specific rules that reduce the potential of fraud and other challenges linked with crowdfunding.