Equity crowdfunding from the perspective of better regulation principles

Crowdfunding offers a technology-enabled solution to the funding gap for startups by allowing them to raise funding from a large number of people through an intermediary. In equity crowdfunding, investors are given equity in the startup in exchange for their investment. Equity crowdfunding does not fit easily into the framework of traditional capital markets regulations and requires a novel regulatory regime achieving a balance between efficient crowdfunding markets and investor protection. 2017 Amendment to Capital Markets Law No.6362 (Law) sets out the legal framework of equity crowdfunding in Turkey, and the Crowdfunding Communique (Communique) adopted by the Capital Markets Board of Türkiye (CMB) lays out further provisions in detail. Equity crowdfunding is designed as a stand-alone financing method with its unique terminology and structure in Turkish law. The Law requires crowdfunding platforms to obtain a license from CMB, whereas startups are excluded from the scope of CMB's remit. Designed with a prescriptive and rule-based approach, the Communique is not completely consistent with the existing capital markets regulations. The principles of better regulation, a set of principles developed over the years to improve the quality of regulatory policy, guide us in assessing the quality and effectiveness of equity crowdfunding regulations under Turkish law.