Entire Section
GEN 2.29 GEN 2.29 Operating a Crowdfunding Platform
GEN 2.29.1 GEN 2.29.1
(1) In GEN Rule 2.2.2, aPerson carries on the activity ofOperating a Crowdfunding Platform if the Person operates:(a) aLoan Crowdfunding Platform ;(b) anInvestment Crowdfunding Platform ; or(c) aProperty Investment Crowdfunding Platform .(2) APerson operates aLoan Crowdfunding Platform under (1)(a) if it does both of the following:(a) operates an electronic platform that facilitates the bringing together of potential lenders and borrowers who wish to obtain funding for a business or project; and(b) administers a loan agreement that results from operating the electronic platform.(3) If thePerson referred to in (2) also provides a facility that assists a lender to transfer his rights and obligations under a loan agreement referred to in that paragraph, that activity is also included within operating aLoan Crowdfunding Platform .(4) APerson operates anInvestment Crowdfunding Platform under (1)(b) if it does both of the following:(a) operates an electronic platform that facilitates the bringing together of potential investors andPersons who wish to obtain funding for a business or project (other than the sale of a property), resulting in an investor making anInvestment with thePerson seeking funding; and(b) administers anInvestment that results from operating the electronic platform.(5) APerson operates aProperty Investment Crowdfunding Platform under (1)(c) if it does both of the following:(a) operates an electronic platform that facilitates the bringing together of potential investors andPersons who wish to sell a property, resulting in an investor making an investment in an individual property; and(b) administers anInvestment or a beneficial interest in a trustthat results from operating the electronic platform. (6) If thePerson referred to in (4) or (5) also provides a facility that assists an investor to sell an investment referred to in those paragraphs, that activity is also included within operating a Crowdfunding Platform under the relevant paragraph.(7) In thisRule :(a) "administer a loan agreement" in (2) means:(i) provide information or perform other duties under the loan agreement on behalf of the borrower or lender;(ii) take steps to obtain the repayment of the loan; or(iii) exercise rights or perform obligations under the loan agreement on behalf of the borrower or lender;(b) "administer anInvestment " in (4) means:(i) provide information or perform other duties relating to theInvestment on behalf of theIssuer or investor;(ii) take steps to obtain the payment of any amount payable by theIssuer to an investor; or(iii) exercise rights or perform obligations relating to theInvestment on behalf of theIssuer or investor;(c) “administer anInvestment or a beneficial interest in a trust” in (5) means: (i) provide information or perform other duties relating to theInvestment or truston behalf of the investor; (ii) take steps to obtain the payment of any amount payable to an investor;(iii) exercise rights or perform obligations relating to theInvestment or truston behalf of an investor; (iv) arrange for any service to be provided relating to the property;(v) provide any service related to aSpecial Purpose Vehicle that holds title to the property; or(vi) arrange for the sale of the property at the end of the investment period;(d) "electronic platform" means a website or other form of electronic media;(e) “property” means land or buildings and includes a part of a building, such as an apartment.(8) APerson (A) administers a loan agreement or an Investment or a beneficial
interest in a trust for the purposes of thisRule if A performs a function itself or through anotherPerson who has been appointed by A, acts under an arrangement with A or acts at A's direction.(9) APerson invests in a property for the purposes of thisRule if thePerson has an interest in the property whether legal or beneficial, direct or indirect, including if thePerson has anInvestment issued by aSpecial Purpose Vehicle that has an interest in the property.[Added] DFSA RMI201/2017 (Made 14th June 2017). [VER40/08-17]
[Amended] DFSA RMI253/2019 (Made 26th June 2019). [VER44/07-19]
[Added] DFSA RMI288/2020 (Made 16th December 2020). [VER50/02-21]GEN 2.29.1 Guidance
1.Operating a Crowdfunding Platform under GEN Rule 2.29.1 requires aPerson not only to operate an electronic platform that brings together lenders and borrowers, investors and issuers or investors and sellers (collectively referred to as 'users'), but also to administer a resulting loan agreement orInvestment . The administration may be carried out by the platform operator itself or by another person acting under an arrangement with, or at the direction of, the platform operator.2. The activity in GEN Rule 2.29.1(2)(a), (4)(a) and (5)(a) only covers electronic systems such as online portals and does not include, for example, meetings to facilitate a loan.3. ACrowdfunding Operator may in some cases also provide a facility that assists lenders or investors using the platform to transfer their rights and obligations under aloan agreement to another lender or to sell theirInvestment to another investor. If aCrowdfunding Operator provides such a facility, that activity will also fall within the definition ofOperating a Crowdfunding Platform (see GEN Rule 2.29.1(3) and (6)).4.Operating a Loan Crowdfunding Platform will apply to a number of types of crowdfunding services such as 'peer to peer' lending, 'peer to business' lending and 'business to business' lending. However, it should be noted that COB Rule 11.3.5 requires a borrower to be aBody Corporate .5.Investment Crowdfunding differs fromLoan Crowdfunding in that, instead of the platform facilitating a loan, it facilitates the issue of an investment to an investor. Under GEN Rule 2.2.10F, the type ofInvestment that can be facilitated is restricted toInvestments such asShares , Certificates,Debentures or Sukuk; facilitating other more complexInvestments such asDerivatives orStructured Products is not permitted.6.Property Investment Crowdfunding involves multiple investors investing in an individual apartment, house or building that has a single title, using aCrowdfunding Platform . Typically, aSpecial Purpose Vehicle (SPV) will hold title to the property and the investors will have an interest in that SPV, for example, aShare orCertificate issued by the SPV.7. Other types of crowdfunding such as 'reward crowdfunding' (i.e. where a financial contribution is made in anticipation of a benefit in existing or future goods or services) and 'donation crowdfunding' (i.e. where contributions are made in support of a social cause) will not usually constitute an activity referred to in GEN Rule 2.29.1 unless a loan orInvestment is involved.8. ACrowdfunding Operator will need an endorsement on itsLicence to deal withRetail Clients if it carries on its activities with a user that is aRetail Client (see GEN Rule 2.2.8). It will also need an endorsement on itsLicence if it holds or controlsClient Assets (see GEN Rule 2.2.10A).9. ACrowdfunding Operator must be aBody Corporate incorporated under the DIFC Companies Law (see GEN Rule 2.210D).[Added] DFSA RMI201/2017 (Made 14th June 2017). [VER40/08-17]
[Amended] DFSA RMI253/2019 (Made 26th June 2019). [VER44/07-19]Exclusions
GEN 2.29.2
A
Person does not carry on the activity referred to in GEN Rule 2.29.1 if thePerson who carries on those activities is itself the sole lender or the sole investor on the electronic platform.[Added] DFSA RMI201/2017 (Made 14th June 2017). [VER40/08-17]GEN 2.29.2 Guidance
The activity in GEN Rule 2.29.1 does not cover an electronic platform where the operator itself is the sole lender providing the loans e.g. if it is a credit provider and provides an electronic facility for use by its clients. Similarly, it does not apply to a platform where the operator is the sole investor. However, if the operator itself lends or invests, it is likely to be carrying on the
Financial Service ofProviding Credit orDealing in Investments as Principal , and will require a separate authorisation for that activity.[Added] DFSA RMI201/2017 (Made 14th June 2017). [VER40/08-17]