On 5 October 2020 the European Parliament adopted the final text for a Regulation on European Crowdfunding Service Providers for Business (the regulation). To view the press release of the European Parliament, click here.
Background
This new legislation is driven by a desire to create a more accessible market with a single EU regime, thereby removing diverging national rules with respect to crowdfunding service providers within the European Union. Crowdfunding is increasingly an established form of alternative finance for small and medium enterprises (SMEs) at an early stage of company growth, typically relying on small investments. To view our earlier update on this topic outlining the original proposal by the European Commission, click here.1
Scope
In short, this regulation shall apply to crowdfunding services provided to non-consumer project owners in an amount up to EUR 5 million (calculated per 12 months per project owner). A prospective crowdfunding platform will need to request authorisation from the national competent authority of the member state in which it is established. Further to notification the crowdfunding service provider can also provide services in other EU member states. ESMA shall maintain a register of crowdfunding service providers.
The regulation includes provisions on investor protection, such as the introduction of a ‘knowledge test’ for ‘non-sophisticated’ investors and the provision of a ‘key investment information sheet’ for investors for each crowdfunding offer or at platform level. Crowdfunding service providers will need to provide prospective project owners clear information about the financial risks and charges they may incur, including insolvency risks and project selection criteria. Furthermore, the regulation contains provisions in respect of organisational and operational requirements for crowdfunding service provider, such as outsourcing, complaints handling, conflicts of interest, marketing communications, provision of asset safekeeping services and payment services and reporting.
Next Steps
The text of the regulation on European Crowdfunding Service Providers for Business will first need to be published in the Official European Journal. It shall become applicable 12 months after the regulation enters into force.
The regulation also provides for a transitional regime for crowdfunding service providers operating under current national regimes.
1. Note that one of the key differences between the original proposal of the European Commission and the final adopted text is that the threshold of offers to which the new criteria will apply is finally set at EUR 5 million (rather than EUR 1 million).
