The EU Crowdfunding Regulation is due to take effect from 10 November 2021. As it is a regulation, rather than a directive, it will take effect directly in member states, subject to certain steps that the local supervising regulator needs to take in order to accept applications for authorisation and supervise marketing. The main features of the regulation are summarised below. If you have plans in this area, please get in touch.
The purpose of the regulation is to enable 'European crowdfunding service providers' to facilitate businesses raising funding directly from EU investors via loans or securities more easily than today. As it only covers business finance, any individuals who seek funding through a 'crowdfunding platform' ("project owners") cannot be acting as consumers.
Project owners cannot raise more than €5m every 12 months (to minimise potential for 'systemic risk' to the financial system).
There can only be one illiquid/indivisible asset per 'special purpose vehicle' (so it cannot operate as a fund or fund manager).
The platform operator must act honestly, fairly and professionally in best interests of clients, with scope for limited discretionary management.
The regulation requires funds to be handled under payment services regulation - either by the platform operator getting authorised as a payment service provider or involving an existing payment service provider - and then adds operational and prudential requirements related to lending or investment in securities.
Specific rules require prudent management, investor information, marketing, cooling-off, secondary markets, complaints handling, outsourcing, safeguarding of funds (under payments regulation) and reporting.
Unless higher capital requirements apply (e.g. where the operator also acts as a payment service provider), the operator must maintain capital equivalent to the higher of €25,000 or 25% of the fixed overheads of the previous year; and this must cover the cost of servicing loans for three months, either in own funds and/or insurance. This must be reviewed annually.
Platform operators can engage in any other lawful business activity.
Platform operators must apply for authorisation in their home EEA member state. Passporting is possible throughout the EEA (passporting will not extend to the UK even though the regulation was part of directly applicable EU law as at 31 December 2020, so a UK authorisation would be required under any local law implementing the regulation).
National regulators will have 25 working days to assess whether an application for authorisation is complete (to try to avoid the situation where regulators keep asking questions and declaring the application to be incomplete so that the mandatory application assessment period does not commence).
Where the same information is required to apply for both the crowdfunding and payment services permissions, it need only be provided once (rather than in two sets of forms and supporting documents).
Please get in touch if we can help with your plans in this area.