Review of Crowdfunding Regulations across Countries: A Systematic Review Study

Abstract

In recent years, the financial industry is seeing rapid implementation of an increasing number of new technologies. In crowdfunding campaigns, borrowers, potential investors, and platform providers may face some issues in terms of information disclosures, selecting an appropriate threshold, and platform insolvency. However, there is insufficient research to provide a cohesive view of the regulatory framework for crowdfunding platforms. This research offers comparative and comprehensive insights through a systematic literature review (SLR) in analyzing the existing regulatory environment across countries. The results suggest the fundamental regulatory framework in supporting startups, early-stage companies, innovation and entrepreneurs, and balancing investor protections and support for businesses seeking to raise funds, particularly in protecting client's fund, crowdfunding advertising law, fundraising and investment limit, authorization and disclosure obligations. This study contributes to providing a comprehensive understanding of crowdfunding regulatory frameworks and informing governments or policymakers in the future development or reform of crowdfunding regulation frameworks.

Tax evasion and money laundering through crowdfunding: a comparative study of the laws of Mauritius, UK and US

“…All these risks are further accelerated if the appropriate checks are not conducted on the fund seeker's creditworthiness, and they are not in a position to return the investors' monies. These investors may end up in liquidity risk (Alhammad et al, 2021). Like any investment system, the risk of money laundering is still present in crowdfunding financing because online platforms can be a suitable avenue for criminals to launder their proceeds of crime (Hidajat, 2020).…”

“…Being aware of the severity of the above-mentioned risks, legislators across the globe have not remained insensitive and accordingly, regulations surrounding crowdfunding have been enacted in several countries such as USA, UK, Mauritius, Spain, Italy, Austria, Belgium, France, amongst others. A recent study conducted by Alhammad et al (2021) sought to assess the differences between crowdfunding regulations among 26 countries, including EU member countries, Asian countries and the USA. The researchers have found that there are specifically some common areas that are covered by the majority of crowdfunding legislation, mainly the authorisation process, fundraising limits, disclosures requirements, advertising policies, capital requirements rules, protection framework for clients' funds and platform-specific regulation concerning either exemptions or additional and miscellaneous requirements.…”

“…Following the successful registration, the crowdfund operator will evaluate and verify the accuracy of the information submitted by the fund seeker and will create a project for the latter’s business idea and objectives if it is deemed appropriate and suitable for financing. Some customer due diligence checks will be applied to the fund seeker, and the security and repayment method will also be verified to ensure that the investors are reimbursed their monies afterward (Alhammad et al , 2021). Finally, the project will be advertised on the crowdfunding portal, and investors can then inject their funds through the already-established payment system.…”

“…In this respect, investors are faced with a heightened risk of losing their capital injected if the business fails to take off (Ganatra, 2016). Furthermore, although customer due diligence checks are conducted by the crowdfunding operator, there is always the inherent risk of fraudulent as well as dishonest funders and fund seekers, such as the failure to disclose that the crowdfunded projects or products are not liquid or that entrepreneurs do not have the requisite expertise to run the project or worse, the business is being used as a cover for illegal money transfers (Alhammad et al , 2021; Oosthuizen, 2021). All these risks are further accelerated if the appropriate checks are not conducted on the fund seeker’s creditworthiness, and they are not in a position to return the investors’ monies.…”

“…All these risks are further accelerated if the appropriate checks are not conducted on the fund seeker’s creditworthiness, and they are not in a position to return the investors’ monies. These investors may end up in liquidity risk (Alhammad et al , 2021).…”