Attention must be paid in investor material about investment-based crowdfunding to describing risks and financial situationFIN-FSA urges companies seeking crowdfunding as well as crowdfunding intermediaries to pay particular attention to the presentation of risks involved in the investment and the description of the financial situation of the company. In addition, assumptions and related risks underlying any forecasts must be stated clearly.
Shares in non-listed and start-up companies are typically high-risk investments. Therefore, the presentation of risks and the financial situation is particularly important in investor information.
In 2020, the Financial Supervisory Authority (FIN-FSA) conducted its first review of compliance with the disclosure obligation in investment-based crowdfunding. The sample of the thematic review included a total of nine funding rounds arranged in 2019 by three entities that provided investment-based crowdfunding that year.
In the basic information documents evaluated in the thematic review, shortcomings were identified in the description of risks and the up-to-datedness of the description of financial situation. Furthermore, as regards marketing material, room for improvement was found in the balanced presentation of information. The material reviewed varied from an entity and funding round to another.
Based on the findings of the completed thematic review, the FIN-FSA recommends entities to pay attention to the following considerations:
Description of risks must be comprehensive and description of financial situation must be up-to-date
Some of the basic information documents reviewed altogether lacked a description of risks related to the company’s business, while some described them incompletely. However, the basic information document required by crowdfunding regulation must include all material risks related to the company's business and the security, which must be consistent with the company's financial situation.
Some basic information documents presented only historical financial statement information. However, in addition to such information, investors must be also given a view of the company’s liquidity position and financing needs at the time when crowdfunding is being sought.
Assumptions and risks related to forecasts must be described clearly
Main assumptions related to sales and operating profit forecasts presented in marketing material as well as risks related to their achievement must be stated clearly, so that the investor is in a better position to assess these forecasts.
In the marketing material reviewed, room for improvement was identified for example in the balanced presentation of positive forecasts and risks related to their realisation.
Crowdfunding regulation requires a basic information document
The Crowdfunding Act requires that a crowdfunding recipient disclose true and sufficient information about factors that are likely to materially influence a company’s value or its repayment ability, before starting to acquire funds. Key information concerning crowdfunding must be included in the basic information document, which must be clear as well as easily readable and understandable in terms of content and presentation.
The objective of the thematic review was to assess whether basic information documents for crowdfunding comply with regulatory requirements, whether counterfactual or misleading information has been given in marketing material, and whether information on any material changes in the financial situation of the recipient or intermediary of crowdfunding has been disclosed publicly without delay. As regards the basic information documents, the FIN-FSA paid particular attention to the presentation of risks as well as the description of financial situation and the use of the proceeds to be raised.
The FIN-FSA has provided guidance to the crowdfunding intermediaries subject to the review by company-specific supervision letters. The FIN-FSA will continue to monitor compliance with the disclosure obligation in crowdfunding.