19 Dec

The EU will soon have in place new rules to improve the way crowdfunding platforms operate

The EU will soon have in place new rules to improve the way crowdfunding platforms operate. The initiative is part of the capital markets union which aims at providing an easier access to new financing sources.

Finland’s presidency of the Council and the European Parliament reached a political agreement on a new framework which makes it easier for crowdfunding platforms to provide their services across the EU. Following finalisation of technical work, the deal will be submitted for endorsement by EU ambassadors.

Increase legal certainty

The new rules will remove barriers for these platforms to operate cross-border by harmonising the minimum requirements when operating in their home market and other EU countries. They will also increase legal certainty through common investor protection rules.

Crowdfunding is an emerging alternative form of financing that connects, typically via the Internet, those who can give, lend or invest money directly with those who need financing for a specific project. For start-ups and other SMEs, bank lending is often expensive or difficult to access due to the lack of credit history or a lack of tangible collateral. Crowdfunding can be a useful substitute funding source, in particular in the early stages of business.

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 be regulated by MiFID and the prospectus regulation. Reward- and donation-based crowdfunding fall outside the scope of the proposal.

The agreed rules provide a high level of investor protection, whilst taking into account compliance cost for providers. 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 will be tailored depending on whether they provide their funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds).

The framework defines common authorisation and supervision rules for national competent authorities. The European Securities and Markets Authority (ESMA) will have an enhanced role to facilitate coordination and cooperation, through a binding dispute mediation mechanism and the development of technical standards.

Next steps
Following technical finalisation, the text will be 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. It will then undergo a legal linguistic revision. Parliament and Council will be invited to adopt the proposed regulation at pursuant to Article 294(7) TFEU (often referred to as an ‘early second-reading agreement’).

By: Estela Martín

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