The Council and the European Parliament reached agreement in late 2019 on the European Commission’s proposal for a crowdfunding regulation.
The proposed legislation will apply to European Crowdfunding Service Providers for crowdfunding campaigns of up to 5 million euro, calculated over a period of 12 months per project owner. The financial return model is either investment-based crowdfunding, consisting of transferable securities (shares and bonds) issued by the company that raises funds, or it is lending-based crowdfunding consisting of entering into a loan agreement.
Under the upcoming rules, investors will be provided with a key investment information sheet drawn up by the project owner for each crowdfunding offer, or at platform level. Crowdfunding webpages will have to display a series of disclaimers and recommendations to that en, including clear information on the financial risks and charges investors may incur, insolvency risks and project selection criteria.
To enable small companies or start-ups to use the crowdfunding option, the EU crowdfunding rules will enable the offering of shares in certain private limited liability companies, which are freely transferable on capital markets.
Unlike the initial proposal tabled by the Commission, the agreement achieved at the level of the Council and the European Parliament envisages that national supervising authorities will be competent to authorise European Crowdfunding Service Providers. Such authorisation would inevitably benefit from the EU’s single licence regime, enabling passporting across the EU on the basis of a single authorisation in one member state.
Supervision of European Crowdfunding Service Providers will be carried out by national regulators and the European Securities and Markets Authority (ESMA). ESMA’s competence is expected to be in areas such as binding dispute mediation, data collection and the development of technical standards for the new regulatory framework.
The new rules are anticipated to improve access to finance for small investors and businesses in need of funding in the EU and lead to a structured growth of the European crowdfunding industry. Investors on crowdfunding platforms will benefit from a better protection regime and a higher level of guarantees, based on clear rules on information disclosures, rules on governance and risk management and a coherent approach to supervision.
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