European Parliament clears rules for EU crowdfunding platforms

News

European Parliament clears rules for EU crowdfunding platforms

8 December 2020

Regulatory News Alert

Context and objectives

Crowdfunding is a financial technology solution that provides small and medium-sized enterprises (SMEs) and, in particular, start-ups and scale-ups, with alternative access to finance in order to promote innovative entrepreneurship in the Union, thereby strengthening the Capital Markets Union. This alternative funding tool is increasingly widespread and became even more popular in the context of COVID-19.

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Up until now, there was no harmonized regulatory framework governing crowdfunding. However, following the adoption of rules for crowdfunding platforms on 20 July, the European Parliament together with the Council, adopted a new single set of rules to boost EU crowdfunding platforms on 5 October 2020.

The rules will apply to all European Crowdfunding Service Providers (ECSP) that operate a digital platform open to the public to facilitate the matching of funding offers up to of €5 million, calculated over a period of 12 months per project owner, after what they will fall under other EU regimes (MIFID, Prospectus).

ECSPs are permitted to finance their client companies through crowdfunding platforms using different instruments: loan agreement, issue of debt securities, issue of equity securities. However, ECSPs are prohibited from taking deposits or other repayable funds from the public, unless they are also authorized as a credit institution. Such ECSP can only be a legal person that has an effective and stable establishment in the Union and meets necessary resource requirements.

The EU institutions clarify that a prospective ECSP would need to:

  • Request authorization from the national competent authority of the Member State in which they are established
  • Complete a notification procedure in a Member State to be able to provide cross-border services.

Moreover, the common rules, aiming at protecting investors from financial loss, introduces a key investment information sheet (KIIS), providing clear information about the financial risks and charges that may incur, including insolvency risks and project selection criteria. The project owner will have to draw up such a KIIS for each crowdfunding offer or at platform level and provide it to the investors.

Supervision will remain with national competition authorities, while ESMA will facilitate and coordinate cooperation between Member States.

The regulation recognizes business models that are relevant for the market. For example, the regulation lays down specific requirements for providers to be able to automatically allocate funds to crowdfunding projects, as well as the possibility to organize secondary trading in securities on a crowdfunding platform.
 

What’s next?

On 20 October 2020, the EU Directive 2020/1504 and EU Regulation 2020/1503 of 7 October 2020 on European crowdfunding service providers were published in the Official Journal. Both texts entered into force on 9 November 2020 and will be applicable from 10 November 2021. By 10 May 2021, Member States should adopt and publish the laws, regulations and administrative provisions necessary to comply with the Directive.
 

What’s in it for my organization?

This regulation allows the use of crowdfunding platform, which will thus offer a new set of opportunities to invest and seek for funding. Additionally, this will create an EU formal status for crowdfunding platform and operators. This evolution may call for the potential review and adaptation of your organization to the new set of requirements and or prepare to engage with potential investors on how to access these platforms for which needs.

This new regulatory framework will definitely boost start-up and FinTech players, as well as traditional players who are considering the offering of crowdfunding solutions.
 

How can Deloitte help?

Deloitte’s advisory specialists and dedicated services can help you design and implement your business strategy in light of the evolution of regulatory frameworks and market trends.

With our Regulatory Watch Kaleidoscope service, Deloitte can also help you stay ahead of the regulatory curve to better manage and plan upcoming regulations.

Contacts

Subject matter specialists

Pascal Martino
Partner – Banking Leader
Tel : +352 45145 2119
pamartino@deloitte.lu

Francesca Messini
Director – FinTech Leader & Authorization Expert
Tel : +352 45145 2791
fmessini@deloitte.lu

Xavier Turquin
Senior Manager – Banking, Transformation
Tel : +352 45145 4229
xturquin@deloitte.lu

 


Regulatory Watch Kaleidoscope service

Simon Ramos
Partner – IM Advisory & Consulting Leader
Tel : +352 45145 2702
siramos@deloitte.lu

Jean-Philippe Peters
Partner – Risk Advisory
Tel : +352 45145 2276
jppeters@deloitte.lu

Benoit Sauvage
Director – Risk Advisory
Tel : +352 45145 4220
bsauvage@deloitte.lu

Marijana Vuksic
Senior Manager – Risk Advisory
Tel : +352 45145 2311
mvuksic@deloitte.lu

 

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