Do you want to create a pfp (crowdfunding/crowdlending)? We’ll tell you what you need to know

Do you want to create a pfp (crowdfunding/crowdlending)? We’ll tell you what you need to know

In Spain, when we talk about crowdfunding in its financial form, we’re not referring to just any kind of collective financing, but rather to a regulated and supervised activity.

For many years, the reference framework was Law 5/2015, for the Promotion of Business Financing, which introduced the figure of crowdfunding platforms (PFPs) and established a specific regulatory regime for such intermediaries.

Legal framework for crowdfunding platforms in Spain (Law 5/2015)

However, this framework has evolved significantly. Today, the regulation is primarily European, harmonized by Regulation (EU) 2020/1503, which establishes a common framework for crowdfunding service providers across the European Union. In Spain, this adaptation has been implemented, among other laws, through Law 18/2022, the “Create and Grow” Law, which replaced the old Title V of Law 5/2015 to align it with the European regulation and assigned the CNMV (Spanish Securities Market Commission) the responsibility to authorize, register, and supervise these platforms.

The result is a more uniform and demanding legal framework that clearly defines who can operate as a platform, what types of projects can be channeled, and what investor protection measures should be in place, especially for non-professional investors.

Differences Between Equity, Lending, and Reward Models

The current regulation clearly distinguishes between the different crowdfunding models, as they do not have the same legal nature nor are they subject to the same regulation.

Equity crowdfunding

Equity crowdfunding is the model based on capital investment. In this case, the investor acquires securities or investment instruments issued by the project promoter, and their return depends directly on the success of the business.

It is an alternative financing mechanism that allows companies to raise capital by spreading the risk among many investors, who can earn returns through dividends, capital gains, or future liquidity events. This model is fully within the scope of the European Regulation and requires a high level of transparency and information for investors.

Lending or crowdlending

On the other hand, lending or crowdlending is a system of loans. Investors lend money to promoters through the platform, which acts as an intermediary, and they receive repayment of the principal along with the agreed-upon interest.

It is a model that allows projects to be financed without relying on traditional banks, and it also falls under the crowdfunding service provision regime when offered as a professional service via a platform.

Reward-based crowdfunding

In contrast to these two models is reward-based crowdfunding (reward). In this case, there is no investment or loan, but rather a contribution in exchange for a product, service, or non-financial benefit.

By its very nature, reward-based crowdfunding is not considered financial crowdfunding and, therefore, generally falls outside the scope of Law 5/2015 and Regulation (EU) 2020/1503. This does not mean it is exempt from regulation, as other laws related to consumer protection, e-commerce, advertising, or taxation may apply, but it does not require authorization as a financial platform.

Requirements for activity authorization

To legally operate in Spain as a crowdfunding platform in the equity or lending models, it is necessary to obtain authorization from the CNMV as a crowdfunding service provider. The authorization is not just a formal process; it requires demonstrating that the platform has the appropriate organization, solvency, and procedures in place to conduct the activity securely.

First and foremost, the operator must be a legal entity and have an appropriate corporate governance and management structure. It is essential to clearly define the program of activities, the services to be provided, and the internal risk management and control mechanisms, as well as to have specific policies on sensitive issues like conflicts of interest, business continuity, and technological security.

From a prudential standpoint, the regulation requires that the platform maintain minimum financial safeguards, calculated based on its general fixed costs. These safeguards can be implemented through own funds, a liability insurance, or a comparable guarantee, with the goal of reducing the risk of service discontinuity and protecting platform users.

On top of this, there are conduct and investor protection obligations, which are especially important when dealing with non-experienced investors. The regulation imposes measures such as a four-day reflection period for certain investments, enhanced risk warnings, and standardized information requirements for each project to ensure that investors fully understand the risks before making a decision.

In summary, the current regime is more demanding than the one that existed in the early years of crowdfunding in Spain. Proper legal and regulatory planning is therefore crucial for launching a crowdfunding platform that is not only business-viable but also fully compliant with the legal framework in place.