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1{'blocks': [{'key': 'cqc12', 'text': 'JOURNALOF FINANCIAL TRANSFORMATION THE CAPCO INSTITUTE SUPERVISION   Regulation of crowdfunding TOBIAS H. TRÖGER DESIGN THINKING#48NOVEMBER 2018', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '17mgt', 'text': 'EditorSHAHIN SHOJAI, Global Head, Capco Institute Advisory Board MICHAEL ETHELSTON,  Partner, Capco MICHAEL PUGLIESE, Partner, Capco BODO SCHAEFER, Partner, Capco Editorial BoardFRANKLIN ALLEN,  Professor of Finance and Economics and Executive Director of the Brevan Howard Centre,  Imperial College London and Nippon Life Professor Emeritus of Finance, University of Pennsylvania PHILIPPE D™ARVISENET,  Adviser and former Group Chief Economist, BNP Paribas RUDI BOGNI, former Chief Executive Of˜ cer, UBS Private Banking BRUNO BONATI,  Chairman of the Non-Executive Board, Zuger Kantonalbank DAN BREZNITZ, Munk Chair of Innovation Studies, University of Toronto URS BIRCHLER, Professor Emeritus of Banking, University of Zurich GÉRY DAENINCK,  former CEO, Robeco JEAN DERMINE, Professor of Banking and Finance, INSEAD DOUGLAS W. DIAMOND,  Merton H. Miller Distinguished Service Professor of Finance, University of Chicago  ELROY DIMSON,  Emeritus Professor of Finance, London Business School NICHOLAS ECONOMIDES,  Professor of Economics, New York University MICHAEL ENTHOVEN,  Chairman, NL Financial Investments JOSÉ LUIS ESCRIVÁ,  President of the Independent Authority for Fiscal Responsibility (AIReF), Spain GEORGE FEIGER, Pro-Vice-Chancellor and Executive Dean, Aston Business School GREGORIO DE FELICE, Head of Research and Chief Economist, Intesa Sanpaolo ALLEN FERRELL, Green˜ eld Professor of Securities Law, Harvard Law School PETER GOMBER, Full Professor, Chair of e-Finance, Goethe University Frankfurt WILFRIED HAUCK, Managing Director, Statera Financial Management GmbH PIERRE HILLION,  The de Picciotto Professor of Alternative Investments,INSEAD ANDREI A. KIRILENKO,  Director of the Centre for Global Finance and Technology, Imperial College Business School MITCHEL LENSON,  Non-Executive Director, Nationwide Building Society DAVID T. LLEWELLYN,  Emeritus Professor of Money and Banking, Loughborough University DONALD A. MARCHAND,  Professor˚Emeritus˚of Strategy and Information Management, IMD COLIN MAYER,  Peter Moores Professor of Management Studies, Oxford University PIERPAOLO MONTANA,  Chief Risk Of˜ cer, Mediobanca ROY C. SMITH,  Kenneth G. Langone Professor of Entrepreneurship and Finance, New York University JOHN TAYSOM,  Visiting Professor of Computer Science, UCL D. SYKES WILFORD,  W. Frank Hipp Distinguished Chair in Business, The Citadel RECIPIENT OF THE APEX AWARD FOR PUBLICATION EXCELLENCE THE CAPCO INSTITUTE JOURNAL OF FINANCIAL TRANSFORMATION', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'ak8ui', 'text': '8  Design thinking as a process for people-centered innovation in the ˜ nancial sector   Rama Gheerawo,  The Helen Hamlyn Centre for Design, Royal College of Art   Jeremy Myerson,  The Helen Hamlyn Centre for Design, Royal College of Art 16  How DBS embraced data-informed design to deliver a differentiated customer experience   Jurgen Meerschaege,  Head of Culture & Curriculum, DataFirst, DBS   Paul Cobban,  Chief Data and Transformation Of˜ cer, DBS   Mark Englehart Evans,  Head of Experience, DBS  24  Empathy and co-creation in capital markets operations Œ insights from the ˜ eld  Amir Dotan, Principal Consultant, Capco Digital 36  How design thinking is powering payments innovation: Our journey at Mastercard  Karen Pascoe,  SVP, Experience Design, Mastercard 42 Why design thinking matters   Anne-Laure Fayard,  Associate Professor of Management,  Department of Technology Management and Innovation, NYU Tandon School of Engineering 48  The adoption and impact of design thinking in ˜ nancial services   Paul Lee-Simion,  CEO, AA INFO, and Senior Consultant, DBS Singapore 54  The design thinking fallacy Œ are banks immune to innovation?  Arjun Muralidharan,  Principal Consultant, Capco Digital  Nikola Zic,  Consultant, Capco Digital 64   Understanding the value of design thinking to innovation in banking  Claude Diderich,  Managing Director, innovate.d llc DESIGN CONTENTS', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'fqb2t', 'text': '142  Early warning indicators of banking crises: Expanding the family  Iñaki Aldasoro,  Economist, Monetary and Economic Department, BIS  Claudio Borio,  Head of the Monetary and Economic Department, BIS   Mathias Drehmann,  Principal Economist, Monetary and Economic Department, BIS 156   Supranational supervision of multinational banks: A moving target   Giacomo Calzolari,  European University Institute, University of Bologna, and CEPR   Jean-Edouard Colliard,  HEC Paris   Gyöngyi Lóránth,  University of Vienna and CEPR 160  Financial stability as a pre-condition for a hard budget constraint: Principles for a European Monetary Fund  Daniel Gros,  Director, CEPS 170  Regulation of crowdfunding   Tobias H. Tröger,  Professor of Private Law, Trade and Business Law, Jurisprudence, Goethe University Frankfurt am Main,  Program Director Research Center Sustainable Architecture for Finance in Europe (SAFE) 76  Digitally-driven change in the insurance industry Œ disruption or transformation?  Jeffrey R. Bohn,  Head, Swiss Re Institute 88  The case for a 21 million bitcoin conspiracy  Peder Østbye,  Special Adviser, Norges Bank 98  Arti˜ cial intelligence: Chances and challenges in quantitative asset management  Fabian Dori,  Quantitative Strategist, AQ Investment Ltd.  Egon Rütsche,  Quantitative Strategist, AQ Investment Ltd.  Urs Schubiger,  Quantitative Strategist, AQ Investment Ltd. 104 New technologies: Destruction or opportunity? Or both...   Thierry Derungs,  Chief Digital Of˜ cer, Head Digital Solutions, IS Investment Solutions  Œ Wealth Management, BNP Paribas sa 112 Thoughts on the economics of bitcoin  Erik Norland,  Senior Economist, CME Group  Blu Putnam,  Chief Economist, CME Group 120  Trading bricks for clicks: Hong Kong poised to launch its virtual banks   Isabel Feliciano-Wendleken,  Managing Principal, Head of Digital, Capco Hong Kong  Matthew Soohoo,  Consultant, Capco  Dominic Poon,  Consultant, Capco  Jasmine Wong,  Consultant, Capco  Antonio Tinto,  Principal Consultant, Capco 132 Financial and data intelligence   Charles S. Tapiero,  Topfer Chair Distinguished Professor, Department of Finance and Risk Engineering,  New York University, Tandon School of Engineering TRANSFORMATION SUPERVISION', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '556im', 'text': 'DEAR READER,', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'b1rp4', 'text': 'Design thinking, a collaborative, human-focused  approach to problem-solving, is no longer just for  the creative industries. It has become an important  management trend across many industries and has been embraced by many organizations. Its results are hard  to ignore. Indeed, design-driven companies regularly  outperform the S&P 500 by over 200 percent.1  To date, the ˜ nancial services industry has not led in  adopting this approach. However, leaders are recognizing  that important challenges, such as engaging with  millennial customers, can be best addressed by using  design thinking, through the methodology™s exploratory  approach, human focus, and bias towards action. This  edition of the Journal examines the value of design  thinking in ˜ nancial services. Design thinking introduces a fundamental cultural shift that places people at the heart of problem-solving,  which is critical in a technology-driven environment.  If the customer™s real problems are not fully understood,  technological solutions may fail to deliver the desired impact. In this context, design thinking offers a  faster and more effective approach to innovation and  strategic transformation.The case studies and success stores in this edition showcase the true value of design thinking in the real  world, and how this approach is an essential competitive  tool for ˜ rms looking to outperform their peers in an  increasingly innovation-driven and customer-centric  future. At Mastercard, design thinking has become a  part of almost all organizational initiatives, from product  development, research and employee engagement  to solving challenges with customers and partners.  Meanwhile, at DBS Bank in Singapore, a data-informed  design model has been ˜ rmly embedded into the bank™s  culture, enabling them to successfully move from being  ranked last among peers for customer service in 2009,  to being named the Best Bank in the World by Global  Finance in 2018.  I hope that you enjoy the quality of the expertise and points of view on offer in this edition, and I wish you every  success for the remainder of the year.  Lance Levy,  Capco CEO1 http://fortune.com/2017/08/31/the-design-value-index-shows-what-design-thinking-is-worth/', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'a5904', 'text': '/ 170TOBIAS H. TRÖGER   |  Professor of Private Law, Trade and Business Law, Jurisprudence,  Goethe University Frankfurt am Main, Program Director Research Center Sustainable  Architecture for Finance in Europe (SAFE)* REGULATION OF  CROWDFUNDING initiated and concluded on novel, IT-driven platforms.  From this perspective, the potential of crowdfunding to  garner economically signi˜ cant volumes of ˜ nancing  relationships seems considerable, 4 thereby creating  massive potential for momentous disruption as a consequence of disintermediation.Once these projected developments gain traction, policy  objectives traditionally pursued in ˜ nancial regulation also  become relevant for agents involved in crowdfunding. 5 Concerns about ˜ nancial stability, investor and consumer  protection, or the prevention of money laundering and  funding of terrorism hinge incrementally on including these new techniques to initiate ˜ nancing relationships  adequately in the regulatory framework. More speci˜ cally,  the legislation through which policymakers seek to implement the relevant objectives, ceteris paribus, have  to be attentive to the speci˜ cs of crowdfunding.  Considering the aforesaid, the pertinent legislation must  pay particular attention to the role of the platforms and their operators because they are at the heart of the ABSTRACT This paper is a shorter version of the national report for Germany prepared for the 20th General Congress of the International Academy of  Comparative Law 2018. It gives an overview of the regulation of crowdfunding in Germany and the typical design of crowdfunding campaigns  under this legal framework. After a brief survey of market data, it delineates the classi˜ cation of crowdfunding transactions in German contract  and corporate law and their treatment under the applicable con˚ ict of laws regime. It then turns to the relevant rules in prudential banking  regulation and capital market law. It highlights disclosure requirements that ˚ ow from both contractual obligations of the initiators of campaigns  vis-à-vis contributors and securities regulation (prospectus regime).*  A longer version of this paper was published in fiGerman National Reports on the 20th International  Congress of Comparative Lawfl 397-428 (Martin Schmidt-Kessel, ed., Tübingen: Mohr Siebeck, 2018). 1. INTRODUCTION 1.1 Policy objectives Crowdfunding is a buzzword that signi˜ es a subset of  the new forms of ˜ nance facilitated by advances in  information technology, usually categorized as ˜ ntech. 1 In contrast to ˜ nancial innovation that pertains to (new  or redesigned) ˜ nancial products and is somewhat  ambiguous in terms of its social value,2 crowdfunding capitalizes on previously unavailable digital techniques to match supply and demand on money and capital markets.  These developments can potentially disrupt traditional forms of intermediation by shifting the boundaries of the (˜ nancial) ˜ rm. 3 Put differently, crowdfunding does  not typically lead to unprecedented forms of ˜ nancing  relations. Instead, it allows for traditional contractual  or corporate law relationships between previously unacquainted providers and consumers of capital to be   / 171SUPERVISION  |  REGULATION OF CROWDFUNDING technological innovation, which may both attenuate  traditional justi˜ cations for government intervention and  create new jeopardies for established policy goals. On the  other hand, the laws that govern the relevant ˜ nancing  relationships once they are concluded face far fewer challenges insofar as they are not materially affected by  the way relationships are initiated and concluded. Put  differently, the contract or corporate law framework that  underpins ˜ nancing relationships is old-fashioned, but  the way it is invoked is novel.1.2 Economic relevance of  crowdfunding in Germany The available data largely pertains to the forms of  crowdfunding that initiate classical ˜ nancing relationships  (loan contracts, purchase of debt instruments, or equity  interests). Granular data on funding relationships with  signi˜ cant altruistic elements is largely lacking. 61.2.1 CROWDLENDING/PEER TO PEER  (P2P) LENDINGIn a study commissioned by the Federal Ministry of  Finance, ˜ nancial economists produced data inter alia on  the scope and structure of the crowdlending market over the period from 2007 to 2015.7 The ˜ ndings showed  an enormous growth of what is the largest segment of  the crowdfunding market (totaling •400 million of credit  extended by the end of 2015, with average annual growth  rates of 95%)8 with a signi˜ cant slowdown during the  economic downturn and even a decline of 22% in 2011.  While P2P lending to consumers occurred relatively early on, crowdlending to businesses is a comparatively  new phenomenon, albeit with staggering growth rates. 9 Until the end of the observation period, the market was  dominated by one player (Auxmoney), mainly used to roll- over existing loans or overdrafts and exhibiting relatively high default rates.10 This arguably induced platforms  to impose stricter access conditions for users seeking credit (presentation of credit ratings). They thus assumed  a more important role as gatekeepers.11 1.2.2 CROWDINVESTINGGermany™s preeminent scholars in the ˜ eld produced  descriptive statistics on the domestic crowdinvesting market.12 They showed not only that the initial upward  trend in the funds raised (a total of almost •53 million since the ˜ rst crowdinvestment initiative in August  2011) has abated recently, 13 but that fundraising is largely concentrated on two platforms (Seedmatch and Companisto). These key players are also highly  successful in placing the issues of start-ups (the success  rate was 100% and 95% respectively), whereas other  platforms have a signi˜ cant fraction of failed offers  that do not reach the funding threshold. With all due  reservations concerning methodologically unhedged  inferences, the data seems to indicate that platforms  perform gate-keeping functions14 and are in a position to build reputational capital as information intermediaries as well.  2. DEFINITION Œ LEGAL QUALIFICATIONS  OF CROWDFUNDING2.1 How is crowdfunding defined in your  legal order? German law does not have any statutory or otherwise  authoritative de˜ nition of crowdfunding. Scholars de˜ ne  crowdfunding as ficollecting ˜ nancial contributions  from a multitude of persons to achieve a common  goal through the use of a specialized internet platform.fl15 Even more broadly, the German Federal  Financial Supervisory Authority (Bundesanstalt für  Finanzdienstleistungsaufsicht, BaFin), understands  crowdfunding as fia type of ˜ nancing which is usually  raised over internet platforms.fl 16 Although de˜ nitions  vary in detail, 17 the common recurring theme is that crowdfunding campaigns are conducted and supply and demand are matched over the Internet or through social media.2.2 Situations usually covered by the  notion ‚crowdfunding™ Variations in the terminology of the German scholarly  debate aside, it is useful to distinguish between several  sub-categories of crowdfunding. They are characterized  by the diverging objectives that parties pursue with their transactions, which in turn shape the considerations  stipulated in the contract.18 In crowdsponsoring,  contributors receive no ˜ nancial compensation, but  support a speci˜ c project with donations. 19 Alternatively,  contributions are rewarded with (nominal) non-monetary  bene˜ ts (figoodiesfl) if the campaign is successful, like  an acknowledgement on the cover of music media or in the credits at the end of a movie.20 Alternatively, the  consideration can have material value, for instance if  supporters of crowdfunding campaigns receive a product from the ˜ rst batch of production or acquire the preferential  right to purchase the product immediately at a reduced ', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '6ojtd', 'text': '/ 172price (reward-based or pre-selling crowdfunding).21 The funding relationship exhibits an even clearer character as an exchange agreement if a ˜ nancial consideration  is stipulated,22 either as ˜ xed compensation (interest)  for the temporary provision of liquidity 23 (crowdlending) or as variable, performance-related payment that ˚ ows  from investments in a business venture in the form of  equity or mezzanine-capital instruments (crowdinvesting or commercial crowdfunding).24 Finally, a similar  arrangement occurs where supporters participate in the  exploitation of copyrights, patents, and similar intellectual  property rights that were facilitated through their crowdfunding contributions, for instance by receiving a  share of the royalties paid to an artist.252.3 Legal qualifications for the different  types of fundingThe general stance of German contract law towards crowdfunding is determined by the fundamental  principle of freedom of contract.26 This holds true even  for crowdinvesting instruments that grant sponsors participation rights in a business venture™s future cash  ˚ ows, because, as a matter of law, the hybrid capital  instruments typically offered constitute debt contracts  that are unaffected by corporate law™s rigidity. 27 This latitude enables initiators of crowdfunding campaigns to structure the respective ˜ nancing relationships to ˜ t their  preferences. Yet, it should not be ignored that the latter are  frequently shaped by an appetite to avoid the constraints of banking and securities regulation. However, as initially  noted, the legal quali˜ cation of ˜ nancing relationships  concluded on platforms poses no idiosyncratic challenge for German private law, because, in principle, all funding  relationships existed prior to digitization in the analogue world and technological innovation has only facilitated  their conclusion among previously unacquainted parties.2.4 Crowdsponsoring If contributions to the campaign are made as donations or no-interest filoansfl without repayment-obligation the  quali˜ cation as an immediately executed gift contract  (Handschenkung) within the meaning of § 516 BGB is straightforward.28 The classi˜ cation requires that the  contribution is made without consideration, meaning the  grant does not legally depend on any return, however  small.29 Quite importantly, promises of non-monetary  rewards also qualify as a consideration that precludes the quali˜ cation of a contract as a gift contract. 30 However, crowdfunding campaigns where initiators  promise no more than to publicly announce the name of the contributor do not necessarily provide for such non-monetary compensation. If the mentioned name is  only one among many others of those who made (small) contributions, the typical credits can be quali˜ ed as legally  irrelevant references to the gift.31 Only if the contribution that is supposed to be mentioned is more prominent,  and thus allows for increased (media) attention can the  relationship between the initiator and the contributor qualify as a sponsoring contract.32 In these contracts,  the publicity of the contribution materially serves the  communicative purposes of the benefactor and its  promise thus constitutes a relevant compensation for the granted funds.33Moreover, German private law requires that both parties  agree that the contribution occurs without consideration.  Simply put, there must be contractual consensus on  its gratuitousness.34 Such a consensus exists when the contribution is neither in a synallagma with a  consideration, nor the condition, nor the cause of law for  such a quid pro quo.35 Hence, if contributors enter into  a legally binding arrangement promising them a material  advantage in the form of an incentive or a goody (for instance a free download of funded music productions or meeting with the artist), the contract cannot be  comprehensively quali˜ ed as a donation. 36 However, if  the parties are aware of a signi˜ cant mismatch between  the higher value of the contribution and the lower one of the consideration, German doctrine splits the transaction  into two independent contracts,37 and thus treats the overshooting fraction of the contribution as a donation38 and treats its compensated part as a reward-based crowdfunding contract.39 2.5 Reward-based crowdfunding If investors in successful crowdfunding campaigns receive access to the product as a consideration for their contribution, for instance a physical delivery from the ˜ rst  manufacturing batch, a data medium with the produced  movie or music album or a download code for it, the  underlying contract can easily be quali˜ ed as a sale. 40 If contributors acquire only a right to buy the product (at a reduced price), the contractual relationship is a purchase  of rights, which is explicitly quali˜ ed as a sale in BGB  § 453 para. 1. 41 If media can only be streamed and no download-to-own is possible, the contractual relationship  between investors and benefactors of crowdfunding campaigns represents a rental agreement.42 Generally,  if the product value (market price) or the price of the SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'hh4p', 'text': '/ 173acquired right is Œ in accordance with the parties™ agreement Œ lower than the contribution, the transaction  may be treated as consisting of two separate contracts. 43 2.6 Crowdlending/P2P lending P2P lending leads to regular, typically unsecured loan  agreements.44 Loans to ˜ nance the acquisition of real  estate, in principle subject to the same provisions in the  German civil code, are practically non-existent, because  such transactions are typically executed through special purpose vehicles in crowdinvesting (infra 4).  However, direct contracting between lenders and  borrowers, mediated through the platform as an agent,  would trigger undesirable regulatory consequences 45 and is, therefore, rare in Germany, as operators have  adjusted their business models accordingly. Although  platforms match lenders and borrowers, they interpose  a credit institution in the transaction that contracts with  both the credit-seeking party and the funding party. 46 On the one hand, the borrower takes out a loan from the  credit institution, procured by the platform that earns  a service fee (borrowing fee). On the other hand, the  funding party purchases the bank™s redemption claim,  which is subsequently assigned once the bank disburses the loan.47 As an economic result of the transaction, the  investor holds a claim against the borrower just like they would had they contracted directly. 48 This observation  begs the question whether a differential treatment in regulation (see infra D.I.1) can be justi˜ ed as a matter  of public policy.  2.7 Crowdinvesting Contributors to crowdinvesting campaigns receive a variable compensation that hinges on the ˜ nanced  venture™s future cash ˚ ows. The speci˜ c design of the  arrangements varies49 and the observable differences  are relevant for the legal quali˜ cation of the contractual  relationships the parties typically conclude. In the vast  majority of cases, the project-executing organization or  person enters into direct contractual relationships with  investors through the platform, whereas arrangements in  which a special purpose entity bundles investments and then contracts with the initiator are rare.50  Recent empirical research highlights the legal structure of typical crowdinvestment products offered through the platforms to ˜ nance business ventures. 51 These insights  are of critical importance, because they determine how  and to what extent crowdinvesting affects the policy objectives of ˜ nancial regulation. The legal structure of  investment products sold on crowdinvesting platforms  de˜ nes both the cash-˚ ow and governance rights vested  with investors, which in turn are crucial for investor  protection, but also have an impact on ˜ nancial stability.  Issuers typically structure the ˜ nancing relationship as  unsecuritized term-debt52 with ˜ xed interest rates 53 and various extents of pro˜ t participation. 54 In most cases,  investors also participate in an increase of the going-concern value of the issuer. 55 Loss participation is limited  to the funds invested in gone-concern scenarios.56 Contractual arrangements in the indenture subordinate  SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'bfolr', 'text': '/ 174the redemption claim to all other claims against the issuer. 57 The contractual relations that underlie typical  German crowdinvestments seek to mimic equity-like risk-and-return structures. This becomes even more  apparent when considering the protection against claim dilution in the case of follow-up funding,58 which prevents new investors from externalizing risk to old investors and bene˜ ting disproportionately from future cash˚ ows. However, the governance rights granted to investors on  crowdinvesting platforms are limited compared to those vested with shareholders. In essence, investors do not  have any in˚ uence on the decision-making process of  the issuer concerning questions of management and  business strategy. 59 Yet, contracts provide for periodic  disclosure of key ˜ nancial and other relevant data that  in some cases have to be explained by initiators at web-based annual investor meetings.60 Control rights beyond the entitlement to candid disclosure are almost non-existent.61 In essence, German law provides three types of  contractual arrangements that conform to the rights and  obligations the parties seek to establish in crowdinvesting transactions.62 The relationship between contributors and  initiators of crowdinvesting campaigns can be framed as either silent partnerships,63 pro˜ t participation rights  (Genussrechte),64 or subordinated pro˜ t-participating  loans (partiarische Nachrangdarlehen).65 The precise  classi˜ cation of individual agreements is dif˜ cult and  courts explicitly follow a case-by-case approach.66 However, key indicators are (i) the lack of monitoring  and control rights, which militates against a quali˜ cation  as (silent) partnership;67 (ii) the existence of a ˜ xed  repayment claim combined with a participation in the  venture™s pro˜ ts or turnover, which speaks in favor of a  pro˜ t participating loan contract; 68 and (iii) the absence of  such a repayment claim and a loss participation not only in gone-concern scenarios that hints at the classi˜ cation  of the ˜ nancing relationship as a pro˜ t participation right  or a silent partnership.69 To distinguish between pro˜ t  participation rights and silent partnership interests, a  pivotal factor is whether the crowdfunding relationship obliges contributors to further the project (common purpose) beyond their ˜ nancial contribution. 70At times, commentators have sought to establish  a separate category for single-project ˜ nancing  relationships like movie productions or music albums.71 However, this further distinction is unnecessary, as these  contracts can be understood as loans with (subordinated) ˜ xed repayment obligations, 72 and the value of the latter hinges on the performance of a single asset and thereby leads to an automatic loss-participation of investors up  to the contributed amount. Alternatively, the respective  ˜ nancing relationships can also be construed as pro˜ t  participation rights granted by the producing entity,  where no repayment claims exist and a loss-participation is possible.73 3. NORMATIVE FRAMEWORK 3.1 General There has been no legislative intervention with regards  to the private law quali˜ cation of contracts concluded on  crowdfunding platforms, probably because the existing  German private law framework allows parties to structure their ˜ nancing relationships according to their economic  goals. They can draw on well-established and thus  broadly approved doctrinal concepts, which are applied  to crowdfunding activities. 74 Deviations from the majority  view in the literature are con˜ ned to narrow aspects,  remain exceptions, and are ultimately not convincing. 75 There is no speci˜ c law that regulates crowdfunding.  Only very limited legislative interventions exist that relax  primary market disclosure obligations in securities laws  for crowdfunding activities.763.2 Conflict of lawsTypical ˜ nancing relationships concluded on platforms  (see supra B.III) fall within the remit of the Rome I Regulation.77 This is also true for the most common  crowdinvesting contracts, the subordinated pro˜ t  participating loans (which are not negotiable instruments within the meaning of art. 1 para. 1 lit. d) Rome I  Regulation78), unsecuritized pro˜ t participation rights,  and Œ according to the majority view in the literature  Œ silent partnership interests.79 Although company law  relationships are generally exempt from the regulation™s  scope of application,80 silent partnerships, by their very  nature, do not entail an actual organization but establish  only contractual ties between the partners.  For all prevalent forms of crowdfunding, a choice of  law is thus possible in principle.81 There is no publicly  available empirical evidence on whether the option is broadly used in practice.82 In any case, the European  con˚ ict of laws rules limit the possibility to choose the  applicable law in consumer contracts insofar as the SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '5gvtt', 'text': '/ 175consumers would be deprived of the protection afforded to them by provisions that cannot be derogated from agreement by virtue of the law of the country of the  consumer™s habitual residence. 83 This rule applies in  crowdfunding relationships concluded through German platforms, because even in crowdinvestment the relevant  contracts do not establish rights and obligations that constitute a ˜ nancial instrument within the meaning  of the exception from the binding consumer protection afforded under the Rome I Regulation.84 However, where  platforms seek to derogate from German law, the most  important consumer protection rules to be considered in the required comparison with the chosen legal system are the subscription limits stipulated in securities laws.85  Where choice of law clauses is not introduced in the respective contracts and consumer protection rules do not apply, 86 the relationship is governed by the law of the country where the party required to effect the  characteristic performance has their habitual residence.87 In crowdfunding relationships, this means the law of the  country where the contributor lives. 884. SUPERVISION OF  CROWDFUNDING ACTIVITY4.1 Licensing requirements Germany has no speci˜ c prudential regulation for  crowdfunding. Authorization requirements can, therefore,  only ˚ ow from the general bodies of law that regulate  the ˜ nancial sector, in particular the regulations  governing credit institutions and investment services  ˜ rms. The intermediation of donation- and reward-based  crowdfunding does not constitute an activity that can  fall under the regimes of prudential banking and capital market regulation, as long as platforms avoid collecting  the funds from contributors beforehand.89 However, the  cases of crowdlending (infra D.I.1) and crowdinvesting (infra D.I.2) are less straightforward and largely depend on platforms™ business models. Where the business  model leads to licensing requirements, the applicable  regime for obtaining and withdrawing licenses is that which is prescribed for credit institutions and investment ˜ rms respectively (infra D.I.3). 4.2 Crowdlending/P2P lending Whether crowdlending platforms require an authorization under the Banking Act hinges on whether their  activity is classi˜ ed as either banking business or  ˜ nancial service. 90 From the outset, there is a broad consensus that the  primary economic function of platforms, to broker credit,  does not constitute banking business within the meaning  of the law, 91 particularly because simple loans do not represent ˜ nancial instruments and hence the activity  of platforms does not amount to investment brokerage (Anlagevermittlung).92 Yet, within this function, speci˜ c  intermediate steps may amount to banking business and thus trigger the authorization requirement.If platforms collected the monetary contributions from the  crowdlenders before forwarding them to borrowers, they  might ful˜ l the statutory elements of fideposit businessfl  (Einlagengeschäft).93 Although even registered users of  the platform would provide fipublic fundsfl as required by  the law, 94 platforms can avoid falling under prudential banking regulation by not offering lenders accounts, and  collecting the funds in successful campaigns only after the threshold level has been reached and forwarding them as quickly as technically possible to borrowers. This  already avoids the funds being regarded as being fitakenfl  by the platform.95 Platforms are even safer if they have contributions collected and forwarded by a cooperating  bank, thereby avoiding the acceptance of lenders™ funds  in the ˜ rst place. The challenges faced by platforms when they wish to avoid their activities amounting to ficredit businessfl  (Kreditgeschäft)96 are far more daunting. As long as  platforms do not issue credits themselves, they do not  violate a pre-authorization requirement with their own conduct.97 However, they may be held liable for aiding and  abetting others in such an infringement of the banking  monopoly and supervisors may, therefore, enjoin their  fiThe pertinent legislation must pay particular attention  to the role of the platforms and their operators because  they are at the heart of the technological innovation,  which may both attenuate traditional justifications for  government intervention and create new jeopardies for  established policy goals.  fl SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '1djht', 'text': '/ 176operations.98 Contributors themselves may fall under the very extensive interpretation of ficredit businessfl and,  therefore, conduct unauthorized banking operations. 99 Any person that extends money loans engages in ficredit  businessfl if the activity is commercial. 100 According to  the majority view endorsed by supervisory practice, an  activity is commercial if it is intended for a certain time period and motivated by an intent to achieve pro˜ ts. 101 A single transaction may suf˜ ce, if the intention is to extend  more loans in the future.102 Platforms react to the extensive authorization requirement by favoring the indirect contracting model (supra B.III.3).103 Despite economically identical outcomes, the supervisory  practice and the majority view in the literature accept that combining the transactions does not amount to ficredit  businessfl for any other party involved than the loan- originating bank, and this can, therefore, be conducted  without (additional) banking licenses.104 In particular, the  various activities of platforms in the indirect contracting models also do not constitute banking business.105  4.3 Crowdinvesting Licensing requirements for crowdinvesting platforms106 under the Banking Act hinge on whether their  activity quali˜ es as either banking business or an  investment service. 107 Regardless of the statutory stipulations of speci˜ c  activities in the statutory de˜ nitions, any ˜ nancial  and investment service has to pertain to fi˜ nancial  instrumentsfl as de˜ ned in banking and securities  regulation.108 Prior to June 1, 2012, silent partnership  interests and unsecuritized participation rights were not included in this de˜ nition, essentially liberating  crowdinvesting platforms from any authorization requirement and the prudential supervision attached  to it. Since then, the de˜ nition of ˜ nancial instruments  also encompasses fi˜ nancial assetsfl within the meaning  of the Capital Investment Act, 109 and since July 10,  2015, these in turn also comprise subordinated pro˜ t  participating loans.110 Hence, the regulatory framework  now in principle also captures the typical OTC investment products offered through platforms, like silent partnership  interests, participation rights, or subordinated pro˜ t  participating loans.Consequently, the main query has become whether  the activity of crowdinvesting platforms with regard to ˜ nancial instruments constitutes one of the  enumerated business activities that qualify as banking or investment services. The consensus among scholars  is that platforms do not engage in underwriting business (Emissionsgeschäft),111 because they do not assume the risk of a successful placement of the ˜ nancial instruments  issued.112 Similarly, typical platform activities do not  constitute placement business (Platzierungsgeschäft),113 because this would require that the platform acts as an agent of the issuer and Œ according to the interpretation of BaFin Œ discloses this agency relationship. 114 Instead,  platforms typically only deliver offers to buy or sell as messengers.115 However, despite some quibbles about  the precise meaning of the law, 116 platforms may indeed engage in investment brokerage (Anlagevermittlung),117 because they intermediate the acquisition and sale of ˜ nancial instruments. 118 According to the majority view,  it does not matter whether the transactions occur on the primary or secondary market. 119 Hence, the execution of  initial offerings through crowdinvesting platforms may fall under the de˜ nition of investment brokerage and  thus constitute banking or investment services that, in  principle, require authorization. Nevertheless, brokerage  activities that pertain to ˜ nancial assets are exempt  from authorization requirements if brokers acquire  property rights neither in the assets nor in the invested funds of the customers.120 This tallies perfectly with the  typical business model of crowdinvesting platforms. As  a consequence, only a special form of trade supervision  (quali˜ zierte Gewerbeaufsicht) applies. 121Finally, authorization requirements could be attached  if a platform™s activities constitute the operation of a  multilateral trading facility (MTF). 122 Some commentators  unconvincingly rule out this possibility by pointing to the regulatory rationale of the underlying European  legislative initiatives that sought to capture MTFs as contemporary competitors of exchanges, arguing that  this would require that platforms also host secondary  market trading.123 The relevant policy goal of the pertinent  regulation is to counter ef˜ ciency losses that are  associated with a fragmentation of trading. In this regard,  price discovery on primary markets is just as important  as it is on secondary markets. 124 The German supervisor  has also repeatedly published the interpretation that crowdinvesting platforms can fall under the de˜ nition of  MTFs.125 However, it is unclear under which preconditions  BaFin will actually ˜ nd that the speci˜ c requirement of a  filarge numberfl of market participants trading at an MTF  has been met in crowdinvestment initiatives.126 SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'cpnpe', 'text': '/ 1774.4 Licensing regime If German crowdfunding platforms chose business  models that require an authorization as a credit institution or an investment ˜ rm, they would have to ful˜ l  all the requirements put forward in prudential banking or securities regulation, in particular the own funds  requirements applicable to banks127 and the extensive standards for the conduct and the organization of ˜ nancial services ˜ rms. 128 Failure to comply would lead to licenses being revoked by the European Central Bank (banking license)129 or BaFin (˜ nancial services ˜ rms). 5. SPECIFIC OBLIGATIONS OF PARTIES 5.1 Disclosure requirements Obligations beyond regular contract law only apply to crowdlending and crowdinvesting.5.1.1 CROWDLENDINGAs a consequence of the indirect contracting model, the  bank that cooperates with the platform has to ful˜ l the  extensive disclosure obligations stipulated for consumer loans,130 as prescribed in European law. 131 The platform  itself incurs a duty to disclose information on the speci˜ cs  of its involvement and the remuneration received for it.1325.1.2 CROWDINVESTINGFunding an unseasoned business without a robust track-record is fraught with informational asymmetries between  investors and founders (insiders) that typically lead to  adverse selection problems.133 These are all the more  serious in our context, because the likelihood of failure of  a funded venture and thus a default on investors™ claims is usually high in crowdinvesting. 134 As a consequence,  information obligations vis-à-vis investors are pivotal.  These can follow either from contractual obligations to inform (infra A.I.1.a) or the prospectus requirement put  forward in securities regulation (infra A.I.1.b). 5.1.2.1 Contractual obligation of platforms Although platforms typically do not perform the role of an investment advisor with the respective set of extensive duties135 simply because they do not recommend speci˜ c  investments,136 some commentators argue that they incur  contractual obligations to provide speci˜ c information to  investors as an investment broker. 137 The main argument  is that, by pre-screening investments and structuring  information presented to the crowd, platforms solicit  trust in their superior expertise and access to information that investors rely upon.138 However, others hold that  platforms advertise investments without an intent to incur legally binding information obligations.139 The latter  position is not convincing given German courts™ general tendency to generously presume tacit agreements where information asymmetries are striking.140 Moreover, the  practice of platforms not to gather, assess, and provide  information is irrelevant with regard to establishing potential obligations and potentially amounts to  neglectful behavior. According to general standards, platforms, therefore,  have an obligation to fully and correctly provide all information they possess that is material for the investment decision to be made.141 Furthermore, they  have to verify the plausibility of the information supplied by the initiator of the campaign.142 This means, as a  minimum, they have to assess whether the initiator  provided all material information investors need to gauge the risks inherent in the investment (for instance on the project idea, business plan, speci˜ c risks, management,  legal form of business venture, and investment) and to  disclose information gaps, if the initiator™s submission  proves insuf˜ cient and additional data is unavailable. 143 Some commentators argue that platforms additionally have to roughly evaluate the viability of the venture,  in order to weed-out fievidently extreme examplesfl of  unrealistic business models.1445.1.2.2 Prospectus requirement and investor  information sheet An important potential channel through which information asymmetries between issuers and investors  can be countered in crowdinvesting are prospectus  requirements. As intermediaries, platforms cannot have  an original duty to draw-up a registration document themselves, but can serve as powerful gatekeepers, if  the general prohibition to distribute ˜ nancial instruments  without a prospectus145 also applies for investments initiated and concluded through crowdinvesting  platforms.  Until July 10, 2015, a full-blown prospectus requirement  under VermAnlG, § 6 for offerings with a nominal  value of more than •100,000 existed, yet certain  ˜ nancing relationships, in particular subordinated pro˜ t  participating loans, were generally not captured by the  regime.146 The reform package of the Small Investor  Protection Act 147 closed the loopholes, but established  SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '8ia3u', 'text': '/ 178an exemption for ˜ nancial assets offered through  crowdinvesting platforms (Schwarm˜ nanzierung). 148 The main preconditions149 are that the aggregate value of the offering does not exceed •2,500,000,  that subscription limits that depend on net worth and income of investors range from •1,000-•10,000, 150 and  that compliance with these preconditions is monitored by the platform. The primary source of information  becomes the mandatory investment information sheet  (Vermögensanlagen-Informationsblatt), which must be  prepared by issuers and provided to potential investors  who have to con˜ rm that they (read and) understand a  speci˜ c warning that points to the risk of a total loss of  the invested funds.151 It has to contain an explicit notice  that no prospectus was prepared for the offering.152 The advertisement restrictions, to be enforced by BaFin, 153 ensure that the express warnings prescribed by law do not go missing in any other relevant communication regarding the investment.154Issuers on crowdinvesting platforms thus have limited choice regarding the regime for primary market  disclosure.155 They can either opt for a fully-˚ edged  prospectus and offer their product publicly without restrictions or accept limitations and make use of the statutory exemption provided for crowdinvesting.  5.2 No obligation to guarantee  accomplishment of, or follow-up  on, the project? German law does not provide for an obligation to guarantee the accomplishment of the project or the participation in follow-up projects. However, typical  contractual arrangements contain all-or-nothing clauses  that ensure that initiators will only draw on individual  contributions if the campaign reaches the target volume of ˜ nancing. 156 Hence, contributors have at least some  certainty that the preconditions for successfully initiating the project are met. Moreover, some protections against  abusive practices ex-post exist, most importantly the  obligation to pay damages if the initiator misappropriates  the funds received.157 5.3 Redress mechanisms in case of  non-accomplishment of the project  If a crowdfunding project fails due to the breach of a  speci˜ c contractual obligation and there is a ˜ nding of  fault on the side of the party in breach, damages may  be available.158Platforms can only be liable for a breach of an obligation to inform. Such duties are most prominent  in crowdinvesting where platforms may assume a role as investment brokers subject to speci˜ c information  obligations (supra A.I.1.a), with a rich body of case law  substantiating the respective duties.159Fraudulent behavior aside, project directors may be  liable if they deploy funds in a way that contradicts the  project description in the campaign. This can occur  through a breach of the primary obligation to produce a  certain good (reward-based crowdfunding) or violate the  secondary obligation to avoid any action that imperils the  other party™s contractual objectives (crowdsponsoring,  crowdinvesting).160 Whether a deviation from the original  plans was a good faith attempt to achieve the original goals of the campaign or a misappropriation of funds is often dif˜ cult to discern.  In principle, unsound managerial decisions that are not  in line with acceptable business practice can give rise  to liability. 161 However, although no speci˜ c case law is  available, courts will probably be reluctant to ˜ nd fault  in business decisions, as long as they were made on a  sound informational basis and in the absence of con˚ icts  of interest.162SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'fc002', 'text': '/ 179ENDNOTES 1  On ˜ ntech in particular, Zetzsche, D. A., R. P. Buckley,  D. W. Arner, and J. N. Barberis, Forthcoming, fiFrom  FinTech to TechFin: the regulatory challenges of data- driven ˜ nance,fl New York University Journal of Law  and Business.2  For proposals that seek to hedge ˜ nancial stability  against regulatory arbitrage without sacri˜ cing the  ef˜ ciency enhancing potential of ˜ nancial innovation  see Posner, E., and E. G. Weyl, 2013, fiAn FDA for  ˜ nancial innovation: applying the insurable interest  doctrine to 21st century ˜ nancial markets,fl 107  Northwester Universty Law Review, 1307 (arguing  for pre-screening of ˜ nancial innovations through a  Federal Drug Authority like agency); Tobias H. Tröger,  T. H., 2016, fiHow special are they? Targeting systemic  risk by regulating shadow banks,fl in Lomfeld, B., A.  Somma, and P. Zumbansen (eds.), Reshaping markets:  Economic governance and liberal utopia, Cambridge  University Press, 185-207 (showing how a normative  approach to law enforcement allowed existing  prudential regulation to capture regulatory arbitrage).  For an overview of the regulatory challenges non-bank  banks pose with regard to systemic risk, Wymeersch,  E., 2017, fiShadow banking and systemic risk,fl EBI  working paper no. 1. 3  The extent to which allocation of resources occurs in  a hierarchy (˜ rm) depends on the transaction costs  incurred in equivalent market transactions, for the  fundamental insight, Coase, R. H., 1937, fiThe nature  of the ˜ rm,fl 4 Economica 386; for a review of the  literature carrying forward the theory of the ˜ rm see  Furubotn, E. G., and R. Richter, 2005, Institutions  and economic theory, University of Michigan Press,  2nd edition, 366-386. With regard to ˜ nancial  intermediation, this means that market-based  solutions should become more prominent once the comparative advantages of intermediation within a big  entity shrink, which is particularly the case if search  costs are lowered as a function of technological  improvements.  4  The early literature points to crowdinvesting™s  potential to allow ˜ rms to receive ˜ nancing from an  additional source that complements bank and venture  capital funding, Pope, N. D., 2011, fiCrowdfunding  microstartups: it™s time for the Securities and  Exchange Commission to approve a small offering  exemption,fl 13 University of Pennsylvania Journal  of Business Law, 101, 113; Hemingway, M.,  and S. R. Hoffman, 2011, fiProceed at your peril:  crowdfunding and the Securities Act of 1933,fl 78  Tennessee. Law Review, 879, 931; Bradford, C. S.,  2012, fiCrowdfunding and the Federal Securities  Laws,fl Columbia Business Law Review, 1, 103-104;  for an account in the business press that envisions  a far-reaching substitution of banks as providers of  credit see Editorial, fiBanking without banks,fl The  Economist, 1 Mar 2014, at 70; for a delineation of  crowdinvesting™s potential in Europe see Zetzsche, D.  A., and C. Preiner, 2017, fiCross-border crowdfunding  Œ towards a single crowdfunding market for  Europe, EBI working paper no. 8; for Germany,  for instance, Meschkowski A., and F. K. Wilhelmi,  2013, fiInvestorenschutz im Crowdinvesting,fl 68  Betriebs-Berater (BB) 1411; speci˜ cally on the  idea of a relative decrease in the costs of capital  as a result of lower search and agency costs in  crowdinvesting relationships, Klöhn, L., and L. Hornuf,  2012, fiCrowdinvesting in Deutschland,fl 24 Zeitschrift  für Bankrecht und Bankwirtschaft (ZBB) 237, 256-8  (arguing that the ‚wisdom of crowds™ is imperfect  and partly irrelevant with regard to relevant agency  relationships. 5  For an overview of the policy issues, see Armour,  J., and L. Enriques, 2017, fiThe promise and perils  of crowdfunding: between corporate ˜ nance and  consumer contracts, European Corporate Governance  Institute working paper no. 366/2017; Zetzsche and  Preiner (2017), supra note 4 at 9-16. The European  Securities and Markets Authority (ESMA) has also  identi˜ ed what it considers to be key components  for an adequate regulatory reaction to the new  phenomenon and outlined several speci˜ c responses  that draw-on and develop the existing E.U. regulatory  framework, ESMA, Opinion: investment based  crowdfunding 10-12 and 12-27. 6  But see Dor˛ eitner, G., and L. Hornuf, 2016, fiFinTech  Markt in Deutschland,fl 22-25, https://bit.ly/2fwSa1C  (presenting aggregate data for the donation- and  reward-based crowdfunding markets that includes  campaigns initiated by Germans on international  platforms and showing that the overall funding  capacity - •85 million between 2007 and 2015 Œ is  small relative to other crowdfunding markets and  dominated by three players, although sourcing occurs  through a large number of intermediaries).7  Dor˛ eitner and Hornuf (2016) supra note 6 at 32-5.  For older data, see Renner, M., 2014, fiBanking without  banks?fl Rechtliche Rahmenbedingungen des Peer-to- Peer Lending, 26 ZBB 261, 262. 8  This observation tallies with the global trend see  Renner (2014) supra note 7 at 263. 9  See also Zhang, B., R. Wardrop, T. Ziegler, A. Lui, J.  Burton, A. James, and K. Garvey, 2016, fiSustaining  momentum: The 2nd European Alternative Finance  Industry Report,fl University of Cambridge study,  https://bit.ly/2cMIUD9 (showing P2P-lending to  consumers growing slower than P2P-lending to  businesses, although on a higher level between 2013  and 2015). Projections indicate that the trend will  continue in the future, see Statista, 2018, fiAlternative  lending segment report,fl https://bit.ly/2OqBIAE  (reporting annual growth rates of 45.7% in the  P2P business lending market until 2022, ultimately  reaching •2,658 million).10  See also Dor˛ eitner, G.,˚C. Priberny, S. Schuster, J.  Stoiber, M. Weber, I. de Castro, and J. Kammler, 2016,  fiDescription-text related soft information in peer-to- peer lending Œ evidence from two leading European platforms,fl 64 Journal of Banking and Finance 169  (reporting default rates of 12-14% for Germany™s  leading lending platforms).  11  On the procedures of German crowdlending platforms  see also Renner (2014) supra note 7 at 263. 12  Klöhn, L., L. Hornuf and T. Schilling, 2016,  fiCrowdinvesting-Verträge,fl 28 ZBB 142, 143-5;  for similar observations see Dor˛ eitner and Hornuf  (2016) supra note 6 at 26-31; more recent data for  2016 corroborates the general trend, see Statista,  2018, fiGesamtvolumen des durch Crowdinvesting  eingesammelten Kapitals in Deutschland von  2011 bis Q4 2016,fl https://bit.ly/2RaHJ2V. For  additional empirical evidence see also Herr,  S., and U. Bantleon, 2015, fiCrowdinvesting als  alternative Unternehmens˜ nanzierung Œ Grundlagen  und Marktdaten in Deutschland,fl 53 Deutsches  Steuerrecht (DStR) 532, 535 (2015); for granular data  on the early phase, Klöhn and Hornuf (2012), supra  note 4 at 239-46. 13  See also Christopher D., 2016, fiCrowdinvesting Œ Ist  das Kleinanlegerschutzgesetz das junge Ende einer innovativen Finanzierungsform,fl 28 ZBB 20, 22  (observing above average growth of crowdinvesting  only in real estate, ecological projects, and movie  ˜ nancing). 14  For anecdotal evidence on very high rejection rates of  up to 99%, see also Hornuf, L., and A. Schwienbacher,  2015, fiThe emergence of crowdinvesting in Europe:  with an in-depth analysis of the German market,fl 25  note 12, LMU discussion paper 2014-43, https://bit. ly/1rqGpLq.15  Klöhn, L., L. Hornuf, and T. Schilling, 2016, fiRegulation  of crowdfunding in the German Small Investor  Protection Act: content, consequences, critique,  suggestions,fl 13 European Company Law 56 note  3; see also Klöhn and Hornuf (2012) supra note 4 at 239. This tallies with de˜ nitions present in the  international literature, see, for instance, Hazen, T.  L., 2012, fiCrowdfunding or fraudfunding Œ social  networks and the Securities Laws Œ why the specially  tailored exemption must be conditioned on meaningful disclosure,fl 90 North Carolina Law Review 1735,  1736 (de˜ ning crowdfunding as sub-category of  crowdsourcing fiwhich refers to mass collaboration  efforts through large numbers of people, generally  using social media or the Internetfl); similarly Hemingway and Hoffman (2011) supra note 4 at 881.  16 https://bit.ly/2OZUAU1 17  See, for instance, Meschkowski and Wilhelmi (2013)  supra note 4 at 1411 (referring to the Wikipedia  de˜ nition, which also highlights the collective effort  in raising resources over the internet to support projects); see also Jansen, J. D., and T. Pfei˛ e,  2012, fiRechtliche Probleme des Crowdfunding,fl  33 Zeitschrift für Wirtschaftsrecht (ZIP) 1842, 1843  (pointing to the origins of crowdfunding in sponsoring  charitable or altruistic projects through web-campaigns).  18  For a distinction between altruistic and ˜ nancially  motivated crowdfunding see for instance, Sixt,  E., 2017, Schwarmökonomie und Crowdfunding,  Springer, 57. For a prudential supervisor™s distinction  of loan-based crowdfunding on the one hand and  investment-based crowdfunding on the other, see  Financial Conduct Authority, 2014, fiThe FCA™s  regulatory approach to crowdfunding over the internet,  and the promotion of non-readily realisable securities by other media 5-6,fl Policy statement 14/4, https://bit. ly/2xSXL9A.19  A very effective example was Barack Obama™s  fundraising campaign for his initial Presidential Campaign, see Bradley, T., 2008, fiFinal fundraising  ˜ gure: Obama™s $750M,fl ABC News, December 5,  https://abcn.ws/2RhAoOR.20  Jansen and Pfei˛ e (2012) supra note 17 at 1843;  Bareiß, A., 2012, fiFilm˜ nanzierung 2.0,fl Zeitschrift  für Urheber- und Medienrecht (ZUM) 456, 460. For a  delineation of possible designs, see also Schramm, D.  M., and J. Carstens, 2014, fiStartup-Crowdfunding und  Crowdinvesting: Ein Guide für Gründer, Springer, 7. 21 Sixt (2017) supra note 18 at 113. 22  For a delineation of the respective categories see  Bodensiek, K., and C. Leinemann, 2015, fiRechtliche  Einordnung des Crowdfundings in Deutschland,fl 3-4  (Revue générale du droit, Études et ré˛ exions No.  5, 2015), https://bit.ly/2Iu7Rl9; Forster, M., 2013,  Crowd˜ nancing 19 (2013); Sixt (2017) supra note 18  at 57-8; Schramm and Carstens (2014) supra note 20  at 7. SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '4j3dl', 'text': '/ 18023  On this fundamental feature of loan contracts, see  Tröger, T., 2012, Loan, in Basedow, J., K. J. Hopt, and  R. Zimmermann (eds.), The Max Planck Encyclopedia  of European Private Law 1106, 1108-9. 24  Speci˜ cally, on the de˜ nition of crowdinvesting as a  form of ˜ nancing of companies by granting an interest  in the ˜ rm™s future cash-˛ ows, Tröger, T. H., 2017,  fiRemarks on the German regulation of crowdfunding,fl  12 Revue Trimestrielle de Droit Financier (RTDF) 79;  similarly Klöhn et al. (2016) supra note 15 at 56 note 4  (2016); Klöhn and Hornuf (2012) supra note 4 at 239. 25  Jansen and Pfei˛ e (2012) supra note 17 at 1843;  Bareiß (2012) supra note 20 at 461-2. 26  Bürgerliches Gesetzbuch [BGB] [Civil Code], Aug.  18, 1896, RGBl. at 195, § 311 para. 1 (translation at  https://bit.ly/2Ql7rQQ), empowers any person to create  an obligation by contract. 27  The German stock corporation law does not allow  any material alteration of the statutory rights and  duties of shareholders, Aktiengesetz [AktG] [Stock  Corporation Act], Sept. 6, 1965, BGBl. I at 1089, §  23 para. 5. Even for other legal forms of business  organizations, German law adheres to the principle  of numerus clauses limiting the latitude to customize  membership interests, see for instance Schmidt, K.,  2002, Gesellschaftsrecht, Heymanns, 96-8 (4th ed.). 28  Jansen and Pfei˛ e (2012) supra note 17 at 1843;  Bareiß (2012) supra note 20 at 460. 29  Reichsgericht [RG] [Imperial Court of Justice] Jan.  30, 1940, 125 Entscheidungen des Reichsgerichts  in Zivilsachen [RGZ] 380 (383); Bundesgerichtshof [BGH] [Federal Court of Justice] Sept. 23, 1981, 82  Entscheidungen des Bundesgerichtshofs in Zivilsachen [BGHZ] 274 (280-2); Koch, J., 2016, § 516 BGB para.  24, in Säcker et al. (eds.), Münchener Kommentar zum  BGB, Vol. III (7th ed.) Chiusi, T. J., 2013, § 516 BGB  para. 49, in J. von Staudingers Kommentar zum BGB  mit Einführungsgesetz und Nebengesetzen.30  BGH Oct. 2, 1991, 45 Neue Juristische Wochenschrift  (NJW) 238, 239 (1992); Koch (2016) supra note 29 at  § 516 para. 25; Chiusi (2013) supra note 29 at § 516  para. 40.  31  For a similar assessment, see Bareiß (2012) supra  note 20 at 461. 32  Under German private law, sponsoring contracts are  construed as a combination of service and work and  labor contracts, see Schaub, R., 2008, Sponsoring  und andere Verträge zur Förderung überindividueller  Zwecke, Mohr Siebeck, 208-11. 33 Bareiß (2012) supra note 20 at 461. 34  Koch (2016) supra note 29 at § 516 para. 14, 24;  Chiusi (2013) supra note 29 at § 516 para. 49. 35  For this majority view see, for instance, BGH Nov.  27, 1991, 116 BGHZ 167 (170); Koch (2016) supra  note 29 at § 516 para. 27. For an overview of the  development of the doctrine, see Fischer, M., 2002,  Die Unentgeltlichkeit im Zivilrecht, Heymann, 42-44;  for a critique see Harke, J. D., 2018, § 516 BGB  para. 67-70, in Gsell, B., W. Krüger, S. Lorenz, and C.  Reymann (eds.), Beck™scher Online Grosskommentar  zum BGB, Verlag C. H. Beck München.  36  Bareiß (2012) supra note 20 at 461; Jansen and  Pfei˛ e (2012) supra note 17 at 1843.  37  If transactions are quali˜ ed as fimixed donations,fl see  for instance Jansen and Pfei˛ e (2012) supra note 17  at 1843 note 6, these classi˜ cations are misguided.  Only if the discrepancy in value was indeed reverse,  i.e., the consideration was worth more than the worth  more than the contribution, the transaction would be  treated as a mixed donation, that is a single contract  that combines elements of a donation and a sale  (negotium mixtum con donatione), BGH Sep. 23, 1981,  82 BGHZ˚274˚(281-2); Koch (2016) supra note 29  at § 516 para. 34; Chiusi (2013) supra note 29 at §  516 para. 63. However, as a matter of pure economic  rationality, it is almost inconceivable that the value  of the consideration is higher than the crowdfunding  contribution, because then the campaign would lose  money and miss its primary purpose.  38  Koch (2016) supra note 29 at § 516 para. 34; Harke  (2018) supra note 35 at § 516 para. 104-5; Hähnchen,  S., 2017, § 516 para. 28, in Westermann, H. P., B.  Grunewald, G. Maier-Reimer; B. Erman, and W. Erman  (eds.), Erman Bürgerliches Gesetzbuch, 15th ed.,  ottoschmidt; Dellios, G., 1981, Zur Präzisierung der  Rechts˜ ndungsmethode bei figemischtenfl Verträgen,  Mohr Siebeck, 103-4 ; for a critique see Ernst, W.,  2010, fiEntgeltlichkeit - Eine Untersuchung am  Beispiel des Tauschs, der gemischten Schenkung und  anderer Verträge,fl in Richardi R., J. Wilhelm, and T.  Lobinger (eds.), Festschrift für Eduard Picker, Mohr  Siebeck, 139, 170-171. 39  On the precise legal quali˜ cation of the latter, see  infra 7.40  Bareiß (2012) supra note 20 at 461. If the  campaign pertains to the production of a tangible good, the contract is one for work and materials  (fiWerklieferungsvertragfl), to which sales law also  applies, cf. BGB, § 650 s. 1. 41  For the general quali˜ cation of the acquisition of  purchase rights for a consideration as a sale of rights,  see Harm Westermann, P., 2016, § 453 BGB para. 4, in  Säcker et al. (eds.), Münchener Kommentar zum BGB,  Vol. III, 7th ed. 42 id. 43 See supra B.III.1. 44  Renner (2014) supra note 7 at 263; see also Berger,  S. C., and B. Skiera, fiElektronische Kreditmarktplätze:  Funktionsweise, Gestaltung und Erkenntnisstand bei  dieser Form des fiPeer-to-Peer Lendingfl,fl 45 Kredit  und Kapital 289, 291 (2012) (showing that a leading  platform foresees that acquired cars are used as  collateral in auto loans). 45 See infra 0. 46 Renner (2014) supra note 7 at 264. 47  Sometimes, in order to minimize the need for costly  information sharing, the credit-extending bank sells  and assigns the redemption claim to a servicing ˜ rm,  which is linked to the platform and subsequently  passes the claim on to the ultimate investor, Renner  (2014) supra note 7 at 264. 48  In the U.S., the same result is reached with synthetic  notes that replicate the cash ˛ ows from the loans  platforms themselves and that are acquired by  investors who may also trade on a secondary  market, see Marte, J., 2010, fiCredit crunch gives  ‚microlending™ a boost,fl Wall Street Journal,  September 26, at 1. 49  For anecdotal evidence in addition to the empirical  ˜ ndings reported infra, see Jansen and Pfei˛ e (2012)  supra note 17 at 1844; Bareiß (2012) supra note 20 at  461.50 Klöhn et al. (2016), supra note 12 at 145. 51  The following section reiterates the main ˜ ndings in  Klöhn et al. (2016) supra note 12 at 148-178. 52  Id. at 149 and 152-4 (showing that contracts usually  are loan agreements that can be terminated after  5-7 years after a minimum notice period has elapsed  and automatic termination after a ˜ xed contract term  representing an exception).53  Id. at 155-6 [˜ nding annual interest rates varying  from 1% to 8% and due either upon redemption, or  periodically (annually, quarter-annually)].  54  Id. at 158-60 (identifying an unlimited pro-rata pro˜ t  participation in four-˜ fths of the cases and a capped  participation in others). 55  Id. at 161-5 (describing that investors either receive  a payment based on an appraisal of the issuer at the  time the investment is terminated or a fraction of the  proceeds that accrue to equity holders if they sell their  shares) 56  Id. at 160 (also showing that liability was sometimes  not limited in the past).57  Id. at 177-8. The reason for the subordination comes  from prudential banking regulation, which would  submit borrowers to an authorization requirement if  the loans were not subject to a speci˜ c subordination  clause, see Pölzig, D., 2014, fiNachrangdarlehen als  Kapitalanlage,fl 68 Wertpapier-Mitteilungen (WM) 917,  919.58  Id. at 166-8 (indicating that contracts provide for  a proportional adjustment of the participation ratio  under which losses can only occur if the issuer is undervalued in the new round of ˜ nancing). 59 Id. at 168. 60  Id. at 168-73 (describing that disclosure obligations  provide inter alia for quarterly reporting, disclosure of  annual accounts, and overview of pro˜ t and revenue  participation). 61  Id. at 173-76; Jansen and Pfei˛ e (2012) supra note 17  at 1844. 62  For instance, Jansen and Pfei˛ e (2012) supra note 17  at 1846; Bareiß (2012) supra note 20 at 461; Klöhn et  al. (2016) supra note 12 at 145; on the development  of the market, which clearly shifted towards  subordinated pro˜ t participating loans in reaction to  prudential regulation see Klöhn et al. (2016) supra  note 15 at 58-9. 63  See generally, Handelsgesetzbuch [HGB] [Commercial  Code], May 10, 1897, RGBl. 219, §§ 230-6 HGB,  translation at https://bit.ly/2QmUS7K. 64  The latter have not received a special treatment  neither in the German Civil nor the Commercial Code, but are anticipated in different legislative  acts, like for instance Capital Investment Act  [Vermögensanlagengesetz, VermAnlG], Dec. 6, 2011,  BGBl. I at 2481, § 1 para. 2 nr. 4, https://bit.ly/2QphGUl  or AktG, §˚221 paras. 3 and 4. The lack of statutory  prescriptions together with the fundamental principle of freedom of contract allow for a highly ˛ exible  individual design of parties™ obligations in these pro˜ t  participation rights. SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': '8lc1n', 'text': '/ 18165  The contract combines a regular loan with an  additional stipulation of sharing in the pro˜ ts or sales  that ˛ ow from the investment of the borrowed funds  as compensation for the lender, see for instance  Schmidt, K., 2012, § 230 HGB para. 54, in Schmidt, K.,  (ed.), Münchener Kommentar zum HGB, Verlag: Beck,  vol. 3, 3rd ed.; Schäfer, C., 2017, Vor § 705 BGB para.  107, in Säcker et al. (eds.), Münchener Kommentar  zum BGB, Verlag: Beck, vol. 6, 7th ed.; Huffer, H.,  1970,˚Das partiarische Geschäft als Rechtstypus.66  RG May 11, 1920, 99 RGZ 161 (163), BGH Jun. 6,  1965, 19 WM 1965, 1052 (1053); Freitag, R., 2015, §  488 BGB para. 70, in J. von Staudingers Kommentar  zum BGB mit Einführungsgesetz und Nebengesetzen; Blaurock, U., 2010, Handbuch der Stillen Gesellschaft ,  7th ed., para 8.30. 67  See HGB § 233 para. 1, which describes typical  control rights of a silent partner.  68  See generally, Habersack, M., 2016, § 221 AktG para.  93, in Goette, W., and M. Habersack (eds.), Münchener  Kommentar zum AktG, C. H. Beck, vol. 4, 4th ed.;  Merkt, H., 2016, § 221 AktG para. 46, in Schmidt, K.,  and M. Lutter (eds.), AktG, vol. 2, 3d ed.. 69  Jansen and Pfei˛ e (2012) supra note 17 at 1846;  Bareiß (2012) supra note 20 at 461.  70  See generally, Schmidt, K., 2012, § 230 HGB para.  54, in Schmidt, K., (ed.), Münchener Kommentar zum  HGB, vol. 3, 3rd ed.; Schäfer, C., 2017, Vor § 705  BGB para. 107, in Säcker et al. (eds.), Münchener  Kommentar zum BGB, vol. 6, 7th ed.; in the context of  crowdinvesting Jansen and Pfei˛ e (2012) supra note  17 at 1846; Bareiß (2012) supra note 20 at 461. 71  See Jansen and Pfei˛ e (2012) supra note 17 at 1846  (submitting that these transactions should be seen as  pro˜ t participation contracts sui generis). 72  Cf. BGB § 488 para. 1 sentence 2 declaring a  repayment obligation essential part of a loan contract  under German law, see also Freitag (2015) supra  note 66 at § 488 para. 70. Where investors receive a  fraction of each individual sale (for instance a share of each cinema ticket sold), this contract design can be  quali˜ ed as a special annuity arrangement (until the  contribution is repaid) and a pro˜ t participation (after  repayment).  73  Bareiß (2012) supra note 20 at 462. Given the legal  character of the participation rights as debt contracts,  such a classi˜ cation is not excluded simply because  investors do not receive an ownership stake in the  funded entity (for this view see Jansen and Pfei˛ e  (2012) supra note 17 at 1844-5). 74  On the lack of legal innovation in pertinent respect,  see already supra A.I. 75 See supra B.III.4.  76 See infra A.I.1.b).  77  Regulation (EC) No˚593/2008 of the European  Parliament and of the Council of 17˚June 2008 on the  law applicable to contractual obligations (Rome I),  2008 O.J. (L 177) 6 [hereinafter Rome I Regulation]. 78  According to the German majority view this requires  securitization of the claim to facilitate its transfer by  an assignment of the instrument, see for instance  Martiny, D., 2012, Art. 1 Rom I VO para. 58-9, in  Säcker et al. (eds.), Münchener Kommentar zum  BGB, vol. 12, 7th ed.; Kieninger, E. M., 2018, VO  (EG) 593/2008 Art. 1 para 15, in Ferrari et al. (eds.),  Internationales Vertragsrecht, 3rd ed. 79  Martiny (2012) supra note 78 at Art. 1 Rom I VO  paras. 65, 72; Kieninger (2018) supra note 78 at  VO (EG) 593/2008 Art. 1 para 15; Wedemann, F.,  § 230 para. 119, in: Oetker, H., (ed.) HGB, 5th ed.;  Roth, W-H., 2014, Internationalprivatrechtliche  Aspekte der Personengesellschaften, 43 Zeitschrift  für Unternehmens- und Gesellschaftsrecht (ZGR) 168, 179; Spindler, G., 2017, fiCrowdfunding und  Crowdinvesting Œ Sach- und kollisionsrechtliche  Einordnung sowie Überlagerung durch die  E-Commerce-Richtlinie,fl 29 ZBB 129, 139. 80  Rome I Regulation, art. 1 para. 2 lit. f). \n81  Rome I Regulation, art. 3 para. 1. On the preconditions  for valid clauses in standard terms, see Verein für  Konsumenteninformation v. Amazon, Case C-191/15,  [2016] ECLI:EU:C:2016:612 (delivered July 28, 2016). 82  The anecdotal evidence reported in Spindler (2017)  supra note 79 at 139 note 144 is inconclusive as the  terms and conditions the author cites are those for the relationship between investors and platforms only. 83 Rome I Regulation, art. 6 para. 2 s. 2. 84  According to recital 30 of the Rome I Regulation,  its art. 6 para. 4 lit. d) pertains only to ˜ nancial  instruments within the meaning of Directive 2014/65/EU of the European Parliament and of the Council of  15˚May 2014 on markets in ˜ nancial instruments  and amending Directive 2002/92/EC and Directive 2011/61/EU, art. 4 para. 17 and Annex I C, [2014]  O.J. (L 173) at 349, which does neither capture silent  partnership interests, nor pro˜ t participation rights,  nor subordinated pro˜ t participating loans, for a  discussion see Spindler (2017) supra note 79 at 139. 85  Infra A.I.1.b). See also Spindler (2017) supra note 79  at 141 (showing that the relevant rules cannot be  quali˜ ed as overriding mandatory provisions within  the meaning of Rome I Regulation, art. 9 para. 1). 86  Rome I Regulation, art. 6 para. 1 points to the law of  the country of the consumer™s habitual residence. 87 Rome I Regulation, art. 3 para. 1. 88  For a speci˜ c discussion, albeit focused on  crowdinvesting relationships, see Spindler (2017)  supra note 79 at 140. 89  Otherwise this intermediate step in the discharge of  the platform™s role can be seen as fideposit business,fl  which requires a banking license, cf. infra D.I.1. 90  See Banking Act [Kreditwesengesetz, KWG], Sep.  9, 1998, BGBl. I at 2446, § 32, with the relevant  de˜ nitions codi˜ ed in KWG, § 1 para. 1a sentence 2  and Securities Trading Act [Wertpapierhandelsgesetz,  WpHG], Sep. 9, 1998, BGBl. I at 2708, § 2 para. 3,  https://bit.ly/2IuhReh.91  BaFin, 2007, Merkblatt zur Erlaubnisp˛ icht der  Betreiber und Nutzer einer internetbasierten Kreditvermittlungsplattform nach dem KWG (2007),  https://bit.ly/2NgoB0j; Renner (2014) supra note 7 at  264.  92  As de˜ ned in KWG § 1 para. 1a sentence 2 no. 1;  for an extensive discussion of the latter aspect see  Veith, J., 2016, fiCrowdlending Œ Anforderungen an  die rechtskonforme Umsetzung der darlehensweisen  Schwarm˜ nanzierung,fl 16 Zeitschrift für Bank- und  Kapitalmarktrecht (BKR) 184, 186-7. 93 De˜ ned in KWG, § 1 para. 2 No. 1.  94  Schäfer, F. A., 2016, § 1 KWG para. 46, in Boos, K-H.,  R. Fischer, and H. Schulte-Mattler (eds.), KWG, CRR- VO, 5th ed. 95  Renner (2014) supra note 7 at 265. For a general  discussion of the respective element in KWG, § 1 para.  2 No. 1 see Demgensky, S., and A. Erm, 2001, fiDer  Begriff der Einlage nach der 6. KWG-Novelle,fl 55 WM \n1445, 1448. 96 As de˜ ned in KWG, § 1 para. 2 No. 2.  97  For the U.S. model which sees platforms extend loans  see supra note 48.98  KWG, § 37 para. 1 s. 4 empowers BaFin to stop the  operations of and wind-down ˜ rms that were involved  in the initiation, conclusion, or execution of prohibited  (unauthorized) activities.99  Veith (2016) supra note 92 at 186; Renner (2014)  supra note 7 at 266 (with a critique that favors a more  restrictive interpretation); see also Schwennicke, A.,  2010, fiVergabe privater Darlehen und Erlaubnisp˛ icht  nach dem KWG,fl WM 542, 548 (2010) arguing in favor  of ˜ rm de minimis limits. 100  Cf. KWG, § 32 para. 1 s. 1. As a matter of practice,  the second alternative of the provision, that  the activity requires a commercial business organization (in kaufmännischer Weise eingerichteter  Geschäftsbetrieb) is mute, because the elements of a  commercial activity are usually met, even though no  speci˜ c organizational arrangements are necessary. 101  BGH Jul. 11, 2006, 60 Der Betrieb (DB) 2061, 2062  (2006); BaFin, Merkblatt Kreditgeschäft (2016), https:// bit.ly/2Rc0Ppn; Schäfer (2016) supra note 94 at § 1  KWG para. 22. 102 BaFin supra note 101. 103  For an alternative proposal that would retain a direct  contracting model but use subordinated loans see  Veith (2016) supra note 92 at 187. 104  BaFin supra note 103; Schäfer supra note 94 at § 1  KWG para. 43; Heer, P. E., 2012, fiDie Übertragung von  Darlehensforderungen Œ eine systematische Übersicht  Œ zugleich Anmerkung zum Urteil des˚BGH vom 19. 4.  2011 Œ˚XI ZR 256/10,fl 12 BKR 45, 47 (2012). 105  For an extensive discussion see Veith (2016) supra  note 92 at 188-9. 106  For an overview on the question if issuers need  an authorization because they engage in fideposit  businessfl (Einlagengeschäft) within the meaning  of KWG, § 1 para. 2 No. 1, see for instance Nietsch,  M., and N. Eberle, 2014, fiBankaufsichts- und  prospektrechtliche Fragen typischer Crowdfunding- Modelle,fl 67 Der Betrieb (DB) 1788, 1790. 107 Supra D.I.1. 108 WpHG § 2 para. 2b; KWG § 1 para. 11 109  Capital Investment Act [Vermögensanlagengesetz,  VermAnlG], Dec. 6, 2011, BGBl. I at 2481, § 1 para. 2,  https://bit.ly/2QphGUl.  110  Prior to the 2015 reforms a debate existed about  whether the de˜ nition of ˜ nancial assets also included  pro˜ t participating loans. See, for instance, Weitnauer,  W., and J. Parzinger, 2013, fiDas Crowdinvesting  als neue Form der Unternehmens˜ nanzierung,fl 4  Gesellschafts- und Wirtschaftsrecht (GWR) 153, 155  (advocating an inclusive de˜ nition on normative  grounds); Nietsch and Eberle (2014) supra note 106 at  1790 and 1793 (opposing such a wide de˜ nition). 111  As de˜ ned in KWG, § 1 para. 1 sentence 2 no. 10;  WpHG, § 2 para. 3 sentence 1 no. 5. SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'u96e', 'text': '/ 182112  On the general precondition of a ˜ rm underwriting  to fall under the statutory regime see Schäfer (2016)  supra note 94 at § 1 KWG para. 112; Kumpan, C.,  2010, § 2 WpHG para. 72, in Schwark, E., and D.  Zimmer (eds.), Kapitalmarktrechtskommentar, 4th ed.. 113  As de˜ ned in KWG § 1 para. 1a sentence 2 no. 1c;  WpHG, § 2 para. 3 sentence 1 no. 6. 114  BaFin, 2009, fiMerkblatt Œ Hinweise zum Tatbestand  des Platzierungsgeschäfts,fl https://bit.ly/2NgoB0j,  (requiring a disclosed open agency relationship). 115  Klöhn and Hornuf (2015) supra note 4 at 249-50. 116  For a detailed description of the relevant provisions™  content see, Jansen and Pfei˛ e (2012) supra note 17  at 1850-1; Klöhn and Hornuf (2015) supra note 4 at  250-1.117  As de˜ ned in KWG § 1 para. 1a sentence 2 no. 1;  WpHG, § 2 para. 3 sentence 1 no. 4. 118  See, for instance, Nietsch, M., and N. Eberle, 2014,  fiCrowdinvesting Œ Welche Auswirkungen hat das  geplante Kleinanlegerschutzgesetz?fl 67 DB 2575,  2576.119  BaFin, 2011, fiMerkblatt Œ Hinweise zum Tatbestand  der Anlagevermittlung,fl; Assmann, H-D., 2012, § 2  WpHG para. 81, in Assmann, H-D., and U. H. Schneider  (eds.), WpHG, 6th ed. 120  As de˜ ned in KWG, § 1 para. 6 no. 8 Buchst. e); WpHG,  § 2a para. 1 no. 7 Buchst. e). 121  Trade Regulation [Gewerbeordnung, GewO], Feb. 22,  1999, BGBl. I at 202, § 34 para. 1 sentence 1, https:// bit.ly/2y4Opa7.122  As de˜ ned in KWG, § 1 para. 1a no. 1b; WpHG, § 2  para. 3 no. 8. See also Directive 2004/39/EC of the  European Parliament and of the Council of 21 April  2004 on markets in ˜ nancial instruments amending  Council Directives 85/611/EEC and 93/6/EEC and Directive˚2000/12/EC of the European Parliament and  of the Council and repealing Council Directive 93/22/EEC, 4 para. 1 no. 15, 2004 O.J. (L 145) 1 [hereinafter  MiFiD]. 123 Klöhn & Hornuf, supra note 4 at 251.  124 See MiFiD, recital 5. 125  BaFin (2011) supra note 119; BaFin, Crowdinvesting,  https://bit.ly/2QpcZtI126  For a general overview see Assmann (2012) supra  note 119 at para. 110. 127  Regulation (EU) No˚575/2013 of the European  Parliament and of the Council of 26˚June 2013 on  prudential requirements for credit institutions and investment ˜ rms and amending Regulation (EU)  No˚648/2012, [2013] O.J. (L 176) 1. 128 WpHG, §§ 63-98. \n129  Council Regulation (EU) No˚1024/2013 of 15˚October  2013 conferring speci˜ c tasks on the European  Central Bank concerning policies relating to the  prudential supervision of credit institutions, art. 4 para.  1 lit. a), [2013] O.J. (L 287) 63. 130  BGB, § 491a. For detailed description of the  information duties Schürnbrandt, J., 2016, Vor § 491  para. 4, in Säcker et al. (eds.), Münchener Kommentar  zum BGB, vol. 3, 7th ed.; for a discussion in the  context of crowdlending see Veith (2016) supra note  92 at 193; Renner (2014) supra note 7 at 268-9. 131  Directive 2008/48/EC of the European Parliament and  of the Council of 23˚April 2008 on credit agreements  for consumers and repealing Council Directive 87/102/EEC, art. 5-7, [2008] O.J. (L 133) 66, implemented in  BGB, §§ 491a, 493. 132  Einführungsgesetz zum Bürgerlichen Gesetzbuche  (EGBGB) [Introductory Act to Civil Code], Aug. 18,  1896, RBl. 604, Art. 247 § 13. 133  Gilson, R. J., 2003, fiEngineering a venture capital  market: lessons from the American experience,fl 55  Stanford Law Review 1067, 1077 (2003) (describing  the key problems in venture capital investing);  Cumming, D. J., and S. A. Johan, 2009, Venture  capital and private equity contracting: an international  perspective, Elsevier, 48-52 (showing that the features  of equity claims make for lemon markets in both  equity and debt ˜ nancing of start-up ˜ rms because  unpro˜ table ventures are more likely to issue equity  while riskier ones have a proclivity to seek debt  ˜ nancing). 134  Bradford, C. S., 2012, fiCrowdfunding and the  Federal Securities Laws,fl 2012 Columbia Business  Law Review, 1, 105; more speci˜ cally for Germany  Meschkowski and Wilhelmi (2013) supra note 4 at  1410-11.  135  An investment advisor has to provide  recommendations inter alia with a view to the speci˜ c  ˜ nancial situation of individual investors and the  characteristics of the investment, see for instance  BGH, July 6, 1993, BGHZ 123, 126 (128-9); Emmerich,  V., 2016, § 311 BGB para. 101, in Säcker et al. (eds.),  Münchener Kommentar zum BGB, vol. 2, 7th ed.  136  However, if platforms use client data to provide  recommendations derived from algorithms, for  instance based on past investment behavior, they  might be seen as investment advisors and incur far reaching ˜ duciary obligations, see Jansen and Pfei˛ e  (2012) supra note 17 at 1849. 137  Jansen and Pfei˛ e (2012) supra note 17 at 1849;  generally on the highly relevant distinction of investment advice on the one hand and investment brokerage on the other in German law, see Assmann,  H-D., 2002, fiNegativberichterstattung als Gegenstand  der Nachforschungs- und Hinweisp˛ ichten von  Anlageberatern und Anlagevermittlern,fl 23 ZIP  637, 648; Mölllers, T. M. J., and T. Ganten, 1998,  fiDie Wohlverhaltensrichtlinie des BAW im Lichte  der neuen Fassung des WpHG Œ Eine kritische  Bestandsaufnahme,fl 27 ZGR 773, 785-6. 138  For these well-established, general preconditions  for a tacit agreement to provide information, see for  instance BGH, Mar. 22, 1979, 74 BGHZ 103 (106);  BGH, Mar. 4, 1987, 100 BGHZ 117 (118-9); BGH, May  13, 1993, 14 ZIP 997 (1993) BGH, Oct. 19, 2006,  27 ZIP 2221 (2006); Heermann, P. W., 2017, § 675  BGB para. 122, in Säcker et al. (eds.), Münchener  Kommentar zum BGB, vol. 5/2, 7th ed.; Siol, J., 2017,  § 45, fiAnlagevermittlung und Prospekthaftung der  Banken,fl in Schimansky et al. (eds.), Bankrechts- Handbuch para. 6, 5th ed.  139  Meschkowski and Wilhelmi (2013) supra note 4 at  1413.140  For an analysis and critique of cases, see Benedict, J.,  2005, Die Haftung des Anlagevermittlers, 26 ZIP 2129,  2131-3.141  See generally 74 BGHZ 103 (110); BGH, Feb. 16, 1981,  80 BGHZ 80 (81-2); Emmerich (2016) supra note 135 at para 127; Siol (2017) supra note 138 at para 9. 142 Emmerich (2016) supra note 135 at para 127. 143  Emmerich (2016) supra note 135 at para 127; Siol  (2017) supra note 138 at para 9. 144 Jansen and Pfei˛ e (2012) supra note 17 at 1850.  145  VermAnlG, § 18 para. 1 no. 2 and no. 3 empower  the supervisor (BaFin) to prohibit public offerings of  investments from going forward if they violate the  prospectus requirements.146  See Meschkowski and Wilhelmi (2013) supra note 4 at  1415; Klöhn and Hornuf (2012) supra note 4 at 259;  Nietsch and Eberle (2014), supra note 106 at 2579. 147  Small Investor Protection Act  [Kleinanlegerschutzgesetz, KASG], July 3, 2015, BGBl.  I at 1114, art. 2 no. 4. 148 VermAnlG, § 2a. 149  For a more granular description of the relevant  statutory requirements, Klöhn et al. (2016) supra note  15 at 59-60; for in-depths analyses see Casper, M.,  2015, fiDas Kleinanlegerschutzgesetz Œ zwischen  berechtigtem und übertriebenem Paternalismus,fl 27  ZBB 265, 275-80; Nietsch and Eberle (2014), supra  note 106 at 1789. 150  For a policy discussion of investment limits, see Klöhn  & Hornuf (2012) supra note 4 at 262-4. For a critique  of the current limits see Klöhn, L., and L. Hornuf,  2015, fiDie Regelung des Crowdfunding im RegE des  Kleinanlegerschutzgesetzes Œ Inhalt, Auswirkungen,  Kritik, Änderungsvorschläge,fl 68 DB 47, 52-53. 151  VermAnlG, §§ 13, 15. For details see Klöhn et al.  (2016) supra note 15 at 60.  152 VermAnlG, § 13 para. 3a. 153  VermAnlG, § 16 para. 1; see Klöhn et al. (2016) supra  note 15 at 60.  154  VermAnlG, § 12 para. 2 and 3 prescribe that the  expressed warnings that a total loss of funds  invested is possible and that a promised return  is not guaranteed are suf˜ ciently visible also  in advertisement campaigns. For a granular  delineation of the restrictions see Waschbusch,  G., 2016, fiDie Masse macht™s Œ Crowdfunding als  Finanzierungsmöglichkeit für Existenzgründer,fl 67 Der  Steuerberater (StB) 206, 208. 155  On the concept, see Romano, R., 1998, fiEmpowering  investors: a market approach to securities regulation,fl  107 Yale Law Journal 2359, 2362, 2418 (1998)  (proposing that issuers be permitted to opt into both  U.S. States™ and foreign nations disclosure regimes);  Palmiter, A. R., 1999, fiToward disclosure choice  in securities offerings,fl Columbia Business Law  Review 1, 86-91 (restricting issuer choice to the  selection of a primary market disclosure regime); for  a critique see Fox, M. B., 1999, fiRetaining mandatory  securities disclosure: why issuer choice is not investor  empowerment,fl 85 Virginia Law Review 1335, 1345- 56 (holding that the divergence between managers™  private bene˜ ts and social bene˜ ts derived from  disclosure rules will induce suboptimal outcomes  under a regime of issuer choice).156  Jansen and Pfei˛ e (2012) supra note 17 at 1844;  Bareiß (2012) supra note 20 at 459 (reporting  that payment accounts of contributors are only  debited if target levels for overall ˜ nancing are  reached or contributions are returned if these levels are undercut).  SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'dnpbk', 'text': '/ 183157  At least the general duty to avoid any acts that  threaten the purpose parties pursue with the contract  (on the respective construction of the accompanying  duties mentioned in BGB, § 241 para. 2 see  Bachmann, G., 2016, § 241 para. 85, in Säcker et al.  (eds.), Münchener Kommentar zum BGB, vol. 2, 7th  ed.) applies, regardless of the legal quali˜ cation of  the crowdfunding relationship. See Jansen and Pfei˛ e  (2012) supra note 17 at 1845 note 21, 1846 without  doctrinal speci˜ cation. See also infra E.III. 158 BGB, §§ 280 para. 1, 276 para. 1.  159  The cases do not speci˜ cally pertain to  crowdinvesting, but to investment brokers in general  and are, therefore, relevant for the determination of  platforms™ duties to inform. For an overview see Siol  (2017) supra note 138 at para. 18-21. 160 See already supra note 157. 161  To ˜ nd negligence, BGB, § 276 para. 2, requires a  showing that the debtor violated the duty of care as  observed by the respective public circles. Hence,  the objective standard needs to be speci˜ ed with a  view to the respective contractual obligation, see for  instance BGH, Mar. 17, 1981, BGHZ 80, 186 (193);  Grundmann, S., 2016, § 276 BGB para. 55-6, in  Säcker et al. (eds.), Münchener Kommentar zum BGB,  vol. 2, 7th ed.). 162  An explicit safe harbor protecting business judgement  against judicial second guessing prone to hindsight  bias is codi˜ ed in AktG, § 93 para. 1 s. 2 for managers  of stock corporations. Beyond the narrow scope of  this speci˜ c provision, the underlying principle is also  relevant in general private law. SUPERVISION  |  REGULATION OF CROWDFUNDING', 'type': 'unstyled', 'depth': 0, 'inlineStyleRanges': [], 'entityRanges': [], 'data': {}}, {'key': 'd584m', 'text': 'Copyright © 2018 The Capital Markets Company BVBA and/or its af˜ liated companies. All  rights reserved.˛ This document was produced for information purposes only and is for the exclusive use of the recipient.This publication has been prepared for general guidance purposes, and is indicative and subject  to change. ˛It does not constitute professional advice. 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