European CMU: Preliminary deal reached on new rules for crowdfunding platforms has been saved
European CMU: Preliminary deal reached on new rules for crowdfunding platforms
20 December 2019
Regulatory News Alert
On 19 December 2019, Finland's presidency of the Council and the European Parliament reached a political agreement on a new framework facilitating the provision of services across the EU for crowdfunding platforms.
The initiative is part of the European Capital Markets Union (CMU), which aims to deepen and further integrate the capital markets of the EU Member states. More specifically, the objectives of the CMU are to:
- Provide new sources of funding for businesses, especially for small and medium-sized enterprises
- Reduce the cost of raising capital
- Increase the options for savers across the EU
- Facilitate cross-border investing and attract more foreign investment into the EU
- Support long-term projects
- Make the EU financial system more stable, resilient, and competitive.
The now agreed crowdfunding framework addresses in particular the first objective, i.e. providing easier access to new financing sources.
The new rules for crowdfunding platforms are part of the implementation of the European Commission’s Action Plan on Building a Capital Markets Union, published in 2015, which sets out the Commission’s priorities for strengthening EU investment for the long term.
In particular, the rules will remove barriers for crowdfunding platforms to operate cross-border by harmonising the minimum requirements when operating in their home market and other EU countries.
Furthermore, the agreed rules will increase legal certainty through common investor protection rules. The text sets outs common prudential, information, and transparency requirements. It also includes specific requirements for non-sophisticated investors. At the same time, the rules for EU crowdfunding businesses differentiate between the provision of funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds).
Lastly, the framework defines common authorisation and supervision rules for national competent authorities. The European Securities and Markets Authority (ESMA) will play a major role in facilitating coordination and cooperation, having tools such as a binding dispute mediation mechanism and the development of technical standards at its disposal.
Scope of the agreed deal
The new rules as agreed by the Presidency and the Parliament will cover crowdfunding campaigns of up to EUR 5 million over a 12-month period.
Larger operations will fall into the scope of the Markets in Financial Instruments Directive (MiFID) and the Prospectus Regulation, while reward- and donation-based crowdfunding are explicitly excluded from the scope of the proposed framework.
The text will be finalised from a technical perspective and, in a next step, submitted to EU ambassadors for endorsement with a view to reaching an agreement in the form of a (pre-negotiated) Council position at first reading. After a legal linguistic revision, Parliament and Council will then be invited to adopt the proposed regulation as an 'early second-reading agreement'.
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