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, a
Personcarries on the activity of Operating a Crowdfunding Platform if the Personoperates:(a) a Loan Crowdfunding Platform;(b) an Investment Crowdfunding Platform; or(c) a Property Investment Crowdfunding Platform.(2) A Personoperates a Loan Crowdfunding Platformunder (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 the Personreferred 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 a Loan Crowdfunding Platform.(4) A Personoperates an Investment Crowdfunding Platformunder (1)(b) if it does both of the following:(a) operates an electronic platform that facilitates the bringing together of potential investors and Personswho wish to obtain funding for a business or project (other than the sale of a property), resulting in an investor making an Investmentwith the Personseeking funding; and(b) administers an Investmentthat results from operating the electronic platform.(5) A Personoperates a Property Investment Crowdfunding Platformunder (1)(c) if it does both of the following:(a) operates an electronic platform that facilitates the bringing together of potential investors and Personswho wish to sell a property, resulting in an investor making an investment in an individual property; and(b) administers an Investmentor a beneficial interest in a trust that results from operating the electronic platform.(6) If the Personreferred 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 this Rule:(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 an Investment" in (4) means:(i) provide information or perform other duties relating to the Investmenton behalf of the Issueror investor;(ii) take steps to obtain the payment of any amount payable by the Issuerto an investor; or(iii) exercise rights or perform obligations relating to the Investmenton behalf of the Issueror investor;(c) “administer an Investmentor a beneficial interest in a trust ” in (5) means:(i) provide information or perform other duties relating to the Investmentor trust on 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 the Investmentor trust on behalf of an investor;(iv) arrange for any service to be provided relating to the property;(v) provide any service related to a Special Purpose Vehiclethat 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) A Person(A) administers a loan agreement or an Investment or a beneficial
interest in a trust for the purposes of this
Ruleif A performs a function itself or through another Personwho has been appointed by A, acts under an arrangement with A or acts at A's direction.(9) A Personinvests in a property for the purposes of this Ruleif the Personhas an interest in the property whether legal or beneficial, direct or indirect, including if the Personhas an Investmentissued by a Special Purpose Vehiclethat has an interest in the property.
GEN 2.29.1 Guidance1.
Operating a Crowdfunding Platformunder GEN Rule 2.29.1 requires a Personnot 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 or Investment. 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. A Crowdfunding Operatormay 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 their Investmentto another investor. If a Crowdfunding Operatorprovides such a facility, that activity will also fall within the definition of Operating a Crowdfunding Platform(see GEN Rule 2.29.1(3) and (6)).4. Operating a Loan Crowdfunding Platformwill 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 a Body Corporate.5. Investment Crowdfundingdiffers from Loan Crowdfundingin 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 of Investmentthat can be facilitated is restricted to Investmentssuch as Shares, Certificates, Debenturesor Sukuk; facilitating other more complex Investmentssuch as Derivativesor Structured Productsis not permitted.6. Property Investment Crowdfundinginvolves multiple investors investing in an individual apartment, house or building that has a single title, using a Crowdfunding Platform. Typically, a Special Purpose Vehicle(SPV) will hold title to the property and the investors will have an interest in that SPV, for example, a Shareor Certificateissued 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 or Investmentis involved.8. A Crowdfunding Operatorwill need an endorsement on its Licenceto deal with Retail Clientsif it carries on its activities with a user that is a Retail Client(see GEN Rule 2.2.8). It will also need an endorsement on its Licenceif it holds or controls Client Assets(see GEN Rule 2.2.10A).9. A Crowdfunding Operatormust be a Body Corporateincorporated under the DIFC Companies Law (see GEN Rule 2.210D).
Persondoes not carry on the activity referred to in GEN Rule 2.29.1 if the Personwho 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 Serviceof Providing Creditor Dealing in Investments as Principal, and will require a separate authorisation for that activity.[Added] DFSA RMI201/2017 (Made 14th June 2017). [VER40/08-17]