How Does Crowdfunding Work in Switzerland?
Crowdfunding or crowdinvesting describes the financing of a business by multiple investors (project financiers). The offer to an open circle of investors is made either directly by the entrepreneur (project developer) or through a platform. In some cases, different legal rules apply to those involved in the process.
Duty to publish a prospectus and exceptions
Financial backers undertaking crowdinvesting run the usual risks for investors. These include a potential total loss. The law therefore provides that there is a duty to publish a prospectus for public offerings of securities (e.g., corporate investments in the form of shares).
However, preparing a prospectus is relatively expensive. The prospectus must comply with the statutory requirements as to content and form and can only be published with the approval of the verifying authority (Art. 35 et seq. Financial Services Act - FinSa).
The provisions relating to the duty to publish a prospectus contain various exception rules. For example, there is no duty to publish a prospectus if specific value thresholds are not exceeded.
This exception is particularly relevant to startups and smaller businesses. Public offerings with a total value not exceeding CHF 8 million (over a period of 12 months) are exempt from the duty to publish a prospectus, as are offerings which are aimed at fewer than 500 investors. The duty to publish a prospectus can also be avoided if the minimum investment per investor is at least CHF 100,000.
Even if there is no duty to publish a prospectus in an individual case, the general provisions of contract law relating to mistake and deceit will always apply, as well as the provisions of the Swiss Federal Law against Unfair Competition.
License requirements for platform operators
Operating a crowdinvesting platform does not normally require a license, if the monies invested are paid directly by the investors to the company.
However, if the money from investors flows through the platform operator’s bank accounts, the platform may need to be licensed by the Swiss Financial Market Supervisory Authority (FINMA).
Monies can usually be accepted without a license if they are purely to be transferred on and if they only remain in the platform operator’s accounts for a maximum of 60 days. Additionally, receipt of a maximum of one million Swiss francs is exempt from the license requirement. The FinTech license allows crowdfunding platforms to hold public deposits on the platform’s accounts for more than 60 days (without a full banking license) if not exceeding the amount of 100 million Swiss francs.
Even if an activity is permitted without a license, specific information duties which can arise on acceptance of investors’ funds must still be considered.
Anti-Money Laundering Act
Finally, it should be noted that the Anti-Money Laundering Act applies to natural or legal persons who act as financial intermediaries. There are specific duties of care and documentation which apply to financial intermediaries and they are also required to join one of the self-regulation organizations supervised by FINMA, if they are not directly regulated by FINMA.
Anyone providing payment transfer services is considered a financial intermediary. This type of service will usually occur if investor monies flow through a platform operator’s accounts.
It should be checked whether any and which financial market legal provisions apply, based on the specific circumstances of the individual case. If there is any evidence of illegal activities, FINMA can commence an investigation and, if necessary, use enforcement measures to ensure legal compliance.