MFSA Launches Discussion Paper On ‘Investment-Based Crowdfunding’
News    ·   07-11-2016

AUTHOR: Malcolm Falzon; Julian Bajada

On the 3rd of November 2016, the Malta Financial Services Authority (‘’MFSA”) issued a Discussion Paper dealing with ‘Investment-Based Crowdfunding’, laying out its proposals for a local regulatory framework.

Investment-based crowdfunding attempts to connect investors directly with entrepreneurs via an online crowdfunding platform, with investors given the opportunity to invest in either equity or debt instruments. The idea is based on tapping into the investment potential of the crowd and the power of the Internet, with a large pool of investors individually contributing a relatively small amount through simple and easily accessible processes available online.

According to the European Commission’s recent Staff Working Document on ‘Crowdfunding in the EU Capital Markets Union[1]’, what started out as a grass-roots concept in the aftermath of the global financial crisis has burgeoned into a world-wide phenomenon. In 2015 over €420m in funds were raised in the EU through ‘equity-crowdfunding’ alone, and over €100m through ‘bond-crowdfunding’. 

Investment-based Crowdfunding offers a number of innovative benefits and has been earmarked for its potential role in bridging the financing gap faced by Start-Ups and SMEs, the beatingheart of the Maltese and EU-wide economies. In this respect the MFSA is proposing to apply the general securities regulatory framework, coupled with the introduction of ad hoc investment protection measures. Primarily, the platform operators would be required to obtain an investment services license in terms of the Investment Services Act (Cap. 370 of the laws of Malta). As its activity would typically consist in the reception and transmission of orders, and placing of instruments on a non-commitment basis, the platform operator would require a Category 1A license, and would furthermore be subject to disclosure requirements under the MiFID and the Distance Selling (Retail Financial Services) regulatory regimes. 

The MFSA is seeking feedback from the industry, and its consultation on detailed proposals for this legal framework on Investment-based Crowdfunding is open until 31st January 2017. (details available on: Camilleri Preziosi has been following developments in, and conducting studies on, all aspects of the crowdfunding phenomenon, and will be submitting its position on the consultation in due course. Any interested parties wishing to get in touch to discuss their views on the subject should contact Dr Malcolm Falzon (Partner, Corporate & Finance Practice Group) or Dr Andrei Vella (Senior Associate, Corporate & Finance Practice Group) on 00356 2123 8989 or malcolm.falzon@camilleri / 

[1] Commission Staff Working Document, ‘Crowdfunding in the EU Capital Markets Union’, 03/05/2016, SWD (2016) 154 final, available on

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