Regulation of crowdfunding models

Circular No. 2 August 15, 2018 

Decree 1357 of July 31, 2018: whereby Decree 3555 of 2010 is amended as it relates to crowdfunding activity.

The "Fintech" entrepreneurship models and collaborative financing systems that have emerged in recent years are gaining more and more strength. According to data from the Ministry of Finance [1], Colombia is positioned in the top three countries in the region with the highest number of ventures with "Fintech" models.

This situation generates the need to issue by the Government, a regulation on those collaborative financing models such as Crowdfunding, so finally the Ministry of Finance and Public Credit issued Decree 1357 of 2018 which added a whole book to Part 2 of Decree 2555 of 2010.

Decree 1357 is based on the Government's interest in giving, to small and medium-sized enterprises (SMEs), access and promotion to technological financing models with particularities that benefit those sectors in particular. In addition, it aims to establish a regulatory framework for the operation of collaborative financing of productive projects through securities, seeking to simplify the operational processes of the same.

The recently issued decree consists of five titles where each one develops an element of the crowdfunding activity. Thus, the first title defines the activity of collaborative financing, the different modalities of Crowdfunding, which are the entities authorized for such activity and their requirements. Within the latter, it was established, for example, that the companies that intend to develop the crowdfunding activity must be public limited companies, must be registered in the National Registry of Securities Market Agents (RNAMV), must adopt certain measures and must have adequate administrative and accounting procedures.

In titles two, three and four, the decree regulates the different actors of the financial activity, namely, entities that develop collaborative financing, the recipients of the resources and the contributors of the same.

One of the major criticisms generated by the present regulation is that the entities seeking to develop collaborative financing must be sole purpose corporations whose purpose is to put in contact a plural number of contributors with recipients requesting financing. This would limit their capacity, making it impossible to use existing companies with installed capacity.

Article 2.41.3.1.2 deals with an issue that has generated great controversy, and that is the maximum amount of financing that a project may have. Thus, the rule authorizes a productive project to have a maximum amount of financing of 10,000 legal monthly minimum wages in force, if the resources come from qualified contributions, that is, from institutional investors, otherwise the maximum ceiling to which a Receiver may aim will be 3,000 legal monthly minimum wages in force, within a maximum period of 6 months from the date of publication of the productive project.

On the other hand, Decree 1357 is clear in establishing the limit in which a contributor may invest or commit to invest, since it may not allocate more than 20% of its annual income or equity regardless of the collaborative investment modality.

Finally, the decree regulates the securities issued in the entities that carry out the activity of collaborative financing, touching cardinal issues such as the requirements for the issuance of securities, the obligation to provide minimum information regarding them, their circulation and cancellation.

Although the decree has already generated strong criticism and controversy from different sectors of the economy, it is noteworthy that the Government is seeking for the country to advance in the use of technology and financial innovation.

Should you require additional information on these or other additional articles, this office will provide you with the necessary advice and support on the subject.

[1] "Government finally regulated crowdfunding in Colombia". Dinero Magazine, August 01, 2018. Retrieved from www.dinero.com/empresas/articulo/colombia-reglamento-el-crowdfunding/260580