EU – FINANCE
Crowdfunding service providers must transition to the framework provided by the Regulation on European Crowdfunding Service Providers, which came into force on 10 November 2021, by 10 November 2022. The new rules provide standardised requirements across the EU for lending- and investment-based crowdfunding for offers up to €5 million per project owner.
- 10 November 2020: Regulation on European Crowdfunding Service Providers comes into force.
- 10 November 2021: Rules enter into application across the EU.
- 10 November 2022: Deadline for crowdfunding service providers to transition to new framework, or be authorised to continue operating under the relevant national framework.
- Peer-to-peer lending for both consumers and businesses has grown significantly over the past decade. In tandem, governments across the EU have introduced varied regulations for investment and lending through crowdfunding platforms.
- In 2015, the European Commission launched the Capital Markets Union (CMU), with the aim of strengthening capital markets across the EU. Increasing access to, and strengthening regulation of, crowdfunding services is part of this aim.
- Following the publication of a proposal in March 2018, the Regulation on European Crowdfunding Service Providers (the "Regulation") was published on 20 October 2020. It came into force on 10 November 2020, and into application on 10 November 2021. Providers have until 10 November 2022 to transition to the new framework or be authorised to continue operating under the relevant national framework.
What it hopes to achieve
- The regulation lays down standard rules across the EU. Platforms can now apply for an EU passport based on a single set of rules, making it easier for them to offer their services across the EU with a single authorisation.
- The Commission hopes that the new rules will increase the availability of crowdfunding, helping companies seeking alternatives to bank financing.
- It also hopes that investors using these platforms will benefit from a standardised and improved framework for protection, encompassing clear rules on disclosure, governance and risk management for these platforms, and strengthened supervisory powers for national regulators.
Who does it impact?
- Crowdfunding service providers ("CSPs").
- Intermediaries arranging the placing of equity or debt instruments in projects on crowdfunding platforms.
- Threshold for offers
- The Regulation applies to offers under €5,000,000 per project owner over a 12-month period. Larger offers will need to be made according to general requirements on public offerings of transferable securities and the provision of regulated financial services.
- Reward- or donation-based crowdfunding will not be covered by the Regulation
- Investor Protection
- All information from CSPs to clients about themselves and the risks involved in investment via their platform must be clear, fair and not misleading.
- CSPs must introduce entry-test requirements to assess the relative sophistication of the individual investor before allowing full entry to the service
- Organisational and Operational Requirements
- CSPs' management bodies must oversee a range of measures, including effective risk management strategies, avoidance of conflicts of interest, and effective complaints policies.
- When outsourcing any services, CSPs remain responsible for any non-compliance with the Regulation and must avoid any additional risk.
- CSPs must have prudential safeguards in place.
- Authorisation, Registration, and Reporting
- All CSPs must register with the relevant national authority.
- The relevant authority must monitor the CSPs. CSPs must provide confidential information to the authority annually, detailing the projects funded via its platform and relevant investors.
- Authorisation can be withdrawn in a range of circumstances.
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