GEN 2.29.1 Guidance
Operating a Crowdfunding Platform under GEN Rule 2.29.1 requires a Person 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 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.
Crowdfunding 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 their Investment to another investor. If a Crowdfunding Operator provides 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)).
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 a Body Corporate.
Investment Crowdfunding differs from Loan 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 of Investment that can be facilitated is restricted to Investments such as Shares, Certificates, Debentures or Sukuk; facilitating other more complex Investments such as Derivatives or Structured Products is not permitted.
Property Investment Crowdfunding involves 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 Share or Certificate 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 or
Investment is involved.
Crowdfunding Operator will need an endorsement on its Licence to deal with Retail Clients if 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 Licence if it holds or controls Client Assets (see GEN Rule 2.2.10A).
Crowdfunding Operator must be a Body Corporate incorporated under the DIFC Companies Law (see GEN Rule 2.210D).