New Rules for Crowdfunding in Europe
On 5 October 2020 the European Parliament approved new rules that will enable crowdfunding platforms to easily provide services across the single market. Crowdfunding platforms operating across EU countries will have to comply with a single set of rules – 2018/0048(COD) (Regulation).
Entities providing crowdfunding services in accordance with national law preceding the Regulation will be allowed to continue to provide crowdfunding services that are included within the scope of the Regulation in accordance with applicable national law until 24 months after the date of entry into force of the Regulation. Crowdfunding service providers (CSP) who have failed to obtain authorization in accordance with the Regulation after the transitional period will not be allowed to issue any new crowdfunding offers after that date.
Cross-border provision of crowdfunding services
The differences between the existing national rules are such that they were obstructing the cross-border provision of crowdfunding services, therefore, this Regulation aims to foster cross-border funding of businesses. After carrying out the procedure of authorization as a CSP and appropriately communicating respective information to the competent authorities of the respective EU Member State, passporting of the services is allowed. The Regulation indicates, that the Member States should not be allowed to impose additional requirements on those crowdfunding service providers that are authorized under the Regulation.
Portfolio management of loans
The Regulation will allow CSP to allocate a pre-determined amount of funds of an investor to one or multiple crowdfunding projects on its crowdfunding platform in accordance with an individual mandate given by the investor, that specifies the minimum and maximum interest rate payable under any loan facilitated for the investor, maturity date of any loan facilitated by the investor, etc. CSP will be required to have in place adequate systems and controls for the management of risk and financial modeling for the provision of this service.
Prudential and other requirements
CSPs will be required to have in place prudential safeguards equal to the amount of at least EUR 25 000, comply with investor protection requirements, especially disclosure of a key investment information sheet, comply with a set of requirements addressed to the organization of the outsourcing process, operate effective internal rules to prevent conflicts of interest, etc.
The new rules for European CSPs will apply one year following their publication in the Official Journal of the EU.
Lithuania – the place to get authorization as a CSP
Lithuania has become a top jurisdiction in Europe for the licensing and operations of fintech companies, and has an already established legal framework for crowdfunding services. Given the maturity of the market and the knowledge of the crowdfunding services by the Bank of Lithuania, Lithuania should become a popular jurisdiction for setting-up of such operations in Europe.
You can also read previous coverage of the Regulation by ADON legal in Bright Future for Crowdfunding in Europe.
For more information contact Donatas Šliora, Partner at ADON legal, and Simas Staniulis, Junior Associate at ADON legal.