The European Parliament has reached a political agreement with the Council of the European Union and the Commission of the European Union regarding the set of legislation relating to crowdfunding activities. Such legislation includes the proposed Regulation (EU) 2018/0048(COD) on European crowdfunding service providers for business and the relevant amendments to MiFID II.
The proposed legislation aims to:
- facilitate the cross-border provision of crowdfunding services;
- set uniform rules for authorization and supervision of the crowdfunding service providers;
- ensure a high degree of transparency and investor protection.
Issues to be Solved by the Regulation
Until now, the provision of crowdfunding services was not regulated at the EU level. Therefore, passporting of such services was not formally allowed. The crowdfunding platform operators had either to keep their business in their national markets or navigate the different domestic regimes, establish elaborate corporate structures, etc. The compliance with different regimes proves to be rather difficult in practice as the national rules diverge as regards the conditions of operation of crowdfunding platforms, the scope of permitted activities and the licensing requirements.
Moreover, SMEs that are operating in smaller markets had difficulties to access this alternative source of financing, and, thus, were in a worse position than compared to similar companies that are operating in a country with a more developed crowdfunding market.
Scope of the Regulation
The set of requirements will apply to all EU crowdfunding service providers up to offers of EUR 5 000 000 (calculated over 12 months) which is the maximum threshold up to which the Member States can exempt offers of securities to the public from the obligation to publish a prospectus. The Regulation shall not apply to the following:
- crowdfunding services that are provided to project owners that are consumers;
- donation and reward-based crowdfunding;
- initial coin offerings (ICOs);
- crowdfunding service providers authorized under national laws;
- crowdfunding services that are provided by duly authorized investment firms.
Protection of the Investors
To reduce the risks associated with crowdfunding, to maintain a high standard of investor protection and to ensure fair treatment of all clients, a set of requirements will be introduced:
- investors will be provided with a key investment information sheet drawn up by the project owner for each crowdfunding offer;
- crowdfunding service providers will have to assess whether their offered services are appropriate for prospective investors based on the investors’ experience, investment objectives, financial situation and a basic understanding of risk;
- certain requirements will also apply to marketing communications by the crowdfunding service providers and rules for the provision of information to investors.
There are currently 11 crowdfunding platform operators registered with the Bank of Lithuania. Some of these operators also have operations in other EU member states; such service providers face difficulties when providing services under different national regimes.
The introduction on EU-wide set of rules for crowdfunding services will open new opportunities:
- Existing market participants operating in several EU member states will have possibility to register with the supervisory authority of one members state and adhere to the same set of rules when providing services across the EU. As a result, such service providers will have the opportunity to simplify their corporate structures and streamline service provision processes.
- Crowdfunding platform operators that are only active in Lithuania will have the possibility to expand their services to other EU markets (a registration in accordance with the rules under the Regulation will be required).
The process of adoption of the Regulation can be followed here: https://eur-lex.europa.eu/procedure/EN/2018_48