European Crowdfunding Service Providers Regulation

On the 15th March 2021, the Malta Financial Services Authority (“MFSA”) issued a circular on the European Crowdfunding Service Providers Regulation (the “Regulation”) informing the industry of the incoming implementation of the Regulation into the national legislative framework.

The Regulation aims to secure harmonisation within the EU for crowdfunding service providers to provide platforms at EU level for lending-based and equity-based crowdfunding services. More often than not, start-ups and innovative companies may find it difficult to secure financing via the traditional means such as bank loans. The Regulation provides the necessary protections required by investors while also enabling crowdfunding services providers to provide a platform for start-ups and innovative companies to raise funds from different classes of investors.

The harmonisation brought by the Regulation will allow for crowdfunding platforms to apply for an EU passport based on a single set of rules, enabling crowdfunding service providers to offer their services across the EU with a single authorisation form any member state.

The Regulation is accompanied by Directive (EU) 2020/1504 which amends the scope of Directive 2014/65/EU (“MiFID II”) by adding authorised crowdfunding service providers to the list of exempted entities which fall out of the scope of MiFID II.

The following are some of the salient features emanating from the Regulation and the foregoing Directive:

  • Offers up to EUR 5 million, calculated over a period of twelve months for each crowdfunding project owner, will fall under the scope of the Regulation. Offers of a higher value will be subject to MiFID II/MiFIR and the Prospectus Regulation;
  • A harmonised investor disclosure regime whereby crowdfunding project owners are required to provide investors with a key investment information sheet, in addition to further disclaimers and recommendations on the relevant communication platform;
  • A suitability and appropriateness test for investors; and
  • A uniform authorisation and passporting process for European crowdfunding service providers across the 27 EU member states.

The Regulation will be accompanied by twelve technical standards which will be issued by the European Securities and Markets Authority (“ESMA”). In this regard, ESMA has issued a consultation document which will be open for participant feedback until the 28th May 2021.

As the MFSA is currently in the process of implementing the Regulation into the national legislative framework, the authority has invited any interested parties and potential stakeholders to provide feedback on the Regulation.

Feel free to contact us should you require further information on the establishment of crowdfunding services in the EU.