Five things to remember after ten years in business (2/5)

We are continuing our series of articles on developments in the online financing sector over the last ten years. The first part of this series was devoted to changes in the economic context. Today, we return to changes in the French and European regulatory frameworks.

We sometimes read on the Internet that there is no legal framework for crowdfunding. This is not true. At the request of the platforms themselves, France was one of the first European countries to adopt a regulatory framework dedicated to crowdfunding back in 2014. This means that the platforms' lobbying efforts and the work of the regulatory authorities had already begun in 2012!

The idea of the players involved at the time, which already included EasyCrowd, was that the confidence of investors and project owners could only be sustained over the long term if the online financing business had a clear regulatory framework.

Since then, this framework has evolved under the influence of several forces:

- While the Internet has been used to finance hundreds of thousands of legitimate projects within a legal framework, its use has also been hijacked for the purposes of terrorist financing and money laundering. This is why KYC (Know Your Customer) obligations have been tightened several times over the last ten years. This has led to an increase in business processes and workloads (and therefore structural costs) for platforms;

- Since the early days of Kickstarter, new financing methods have been implemented by the platforms, while at the same time new types of structure have tried their luck at online financing. These new uses of crowdfunding have required national regulators to regularly revise the regulatory framework. With some delay, admittedly, but generally in consultation with local players;

- As the crowdfunding market has grown rapidly (particularly in the refinancing of real-estate developments), the change in scale has forced some players to extend their geographcal reach. In Europe, this has led to the need to move from national regulation to a European regulatory framework, enabling players to operate - under certain conditions - in all EU member countries. This is commonly referred to as the European passport;

- Another positive point is that the players in participatory finance, some of whom were virtual neophytes in the field of finance at the start of the 2010s, have rapidly become professionalized, which has led to an alignment of practices with regard to banking and financial risks, but also - once again - to greater burdens and costs.

All these transformations have had an impact not only on the organization of the players involved, but also on their business models. In short, it's important to understand that the regulatory framework within which financial professionals operate - whether online or offline - strongly structures the market. In fact, some activities can become much more difficult to operate in the wake of a change in regulation.