Response from the Danish Government to the public consultation on

crowdfunding in the EU – Exploring the added value of potential EU

action

Denmark appreciates the opportunity to set forth our views on crowd-funding in the EU as an alternative finance instrument to support SMEs.Denmark agrees that the Commission should explore ways of encourag-ing the development of crowdfunding and should seek to identify andeliminate regulatory obstacles. Reward-based and donation-based crowd-funding are already thriving in most European countries, but lending-based and especially equity-based crowdfunding needs special attentionregarding the financial laws and regulatory framework in the EU to helpSME's gain new access to finance.In relation to equity-based crowdfunding, Denmark finds it essential tothoroughly validate the quality of the projects before raising capitalthrough crowdfunding websites. Despite very few reported incidents onfraud in crowdfunding investments1it is still deemed necessary to estab-lish appropriate protection for potential investors and their capital contri-butions. There has to be a regulatory framework for crowdfunding other-wise Denmark is afraid that possibilities of cheating and the risk of fraudwill take the agenda instead of looking at the new possibilities thatcrowdfunding offers.What separates crowdfunding investments from traditional investments istypically that the risk associated with crowdfunding is higher. As withother investments that contain risk it is vital to make crowdfunding in-vestments transparent and to ensure that the capital invested is used forthe purpose intended, and to make sure there is full clarity about the shareof ownership in any given project.

This summer Italy - as the first country in Europe - issued a new equity-based crowdfunding law, that can help promote and develop crowdfund-ing even further. The same applies in the United Kingdom where newlegislation is being implemented during the spring of 2014 to create a le-gal framework for crowdfunding. Denmark agrees that all EU-countriesin common shall seek to remove most obstacles for this new high-potential investment form.Equity crowdfunding shares a lot of commonalities with the better knownconcept of venture capital in the sense that it focuses on entrepreneursand innovative young companies that only require a limited amount ofcapital to get started and that it competes as an alternative to traditionalbank financing. This is especially true due to the economic crisis wherebanks risk-taking currently is very low and also affected by the new sol-vency requirements proposed by the EU. Given the low growth in thecurrent economy and low interest rates investors are more susceptible totake on more risk. This makes crowdfunding an interesting alternative tobank finance.On this basis Denmark agrees that it is important to raise awareness ofthis topic in Europe and recommends more European initiatives that canpromote crowdfunding. It is very important that regulatory measures willnot make crowdfunding administrative burdensome and that investorsand consumers are given adequate protection without stifling the devel-opment of crowdfunding as a new finance alternative.Denmark does not recommend that the Commission initiate its owncrowdfunding-platform as many crowdfunding websites already existsacross many different EU countries. Denmark also proposes that EU-member-states use existing crowdfunding-platforms in an innovative wayto fund new public projects or public-private partnerships.Denmark emphasises that access to finance should remain a priority in fu-ture European policy development. However, if alternative sources ofSME finance are to be explored, such as crowdfunding, it should be takeninto account that the financial markets in the member states differ andthat not all means of funding necessarily are attractive in all memberstates.The EU can however play an effective role in arranging the financialregulatory services, to meet a wider range of crowdfunding websites. TheEU can also work on developing guidelines for capital providers and in-vestors in the crowdfunding industry to minimize the risk of fraud and toestablish complete clarity of questions on subjects such as ownership,procedures for payment of dividends and investor protection.