Harmonised European Regulation for Crowdfunding

On the 10th of November 2021, the European Crowdfunding Service Providers for Business Regulation (“ECSPR”) and the accompanying Directive amending MiFID II came into force, achieving harmonisation of a regulatory rulebook for crowdfunding service providers within the European Union (“EU”). This will strengthen the ever-growing presence of crowdfunding as a means of funding for small and medium enterprises with the direct involvement of citizens.

The European Commission (“EC“) reignited its interest in this sector with the aim of creating a European innovative financial service market. Negotiations ended in 2020 when the final text was signed off by the European Parliament (“EP“).

The harmonised ECSPR contain very flexible rules to allow platforms to switch from their incumbent national licenses to a European license with no obstacles. The new rules also set a clear focus on professional conduct and consumer protection. Now that this new regulation is in place, the sector is protected from regulatory arbitrage of other actors and will be capable of continued development. As per the ECSPR, crowdfunding service providers offering financial services will now start operating under the license for lending and securities. This also applies to some national instruments which fall under the application of the new rules.

Also noteworthy is that the European Market and Securities Authorities have already published their Final Report on technical standards on crowdfunding on the 10th of November 2021. The twelve standards in this Report cover all investor protection aspects under the ECSPR, including:

  • Complaints handling;
  • Conflicts of interest;
  • Business Continuity Plan;
  • Authorisation;
  • Information on default rate;
  • Entry knowledge test and simulation of the ability to bear loss;
  • Key investment information sheet;
  • Cooperation between competent authorities;
  • Reporting;
  • Notification to ESMA of national provisions concerning marketing requirements;
  • Cooperation between competent authorities; and
  • Cooperation between competent authorities and ESMA.

Currently, the industry is awaiting for the implementing processes to be made available by the national competent authorities.

Do not hesitate to contact us should you require more information and assistance on the above.