How the EU crowdfunding rules came to be
Last month, newly-harmonised European crowdfunding laws came into effect following years of consultation with industry representatives such as the European Crowdfunding Network, also known as EuroCrowd.
The European Crowdfunding Service Providers Regulation (ECSPR) rules allow platforms to be licensed at the member state level while issuing securities and business loans to investors across the European Union.
The ECSPR aims to make it easier for European crowdfunding and some peer-to-peer platforms to operate across the continent without the additional paperwork that comes with launching products in multiple jurisdictions.
“The start of the new European crowdfunding regulation will increase the quality of the European crowdfunding investment eco-system,” says Christin Friedrich, chair of the non-executive board at EuroCrowd.
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“The regulation will create a largely harmonised framework and makes investment crowdfunding finally available in all European countries under similar conditions. It will lead to the creation of pan-European crowdfunding platforms”
However, Friedrich warns European platforms to pay attention to the small print, as the regulation also includes compliance requirements and may create regulatory competition between some member states.
“There is a 12-month transition period for platforms currently holding licence under national law, but time to apply for the new licence will be shorter as the process of granting an ECSPR licence may take three or more months in some member states,” she explains.
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“Most likely, a number of platforms will stop their operations in the next 12 months and others will need to adjust their business model and infrastructure.
“But a number of platforms are already set up in relative alignment with the new rules and will be able to acquire the new licence more quickly. This will likely cause a shake-out in the industry, but also create exciting opportunities for growth and professionalisation.”
The regulations signal a new era for European crowdfunding, and it all began back in 2012.
Nine years ago, EuroCrowd entered into its first discussions with policymakers in Brussels, suggesting that crowdfunding could help to finance small and medium-sized business, promote innovation and create jobs, executive director at EuroCrowd, Oliver Gajda remembers. This led to a years-long review of the P2P and crowdfunding markets by the European Commission (EC), culminating in a 2014 decision not to harmonise EU-wide crowdfunding rules.
From this point onwards, EuroCrowd noticed a “significant shift of interest of platform operators to national opportunities.”
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In 2017, crowdfunding was granted an exemption to the prospectus law that enabled the growth of the sector in individual member states.
“For the first time, we saw sizeable transactions, platforms grow a noticeable presence and a clear indication that our vision of crowdfunding to become an innovative way of funding our economy with the direct involvement of citizens was working,” says Cristina Moreno, head of operations at EuroCrowd.
This growth spurt helped to reignite the interest of the EC in the crowdfunding sector and in 2018 the EC published the proposal for ECSPR alongside a fintech action plan and launched a review of the Capital Markets Union.
Over the years, EuroCrowd and its members have been actively working with the EC and the European legislator to share their concerns and ideas, engage with the market, and work together to create an EU-wide framework that makes it easier for borrowers to access finance, and for investors to support European businesses and consumers.
The ECSPR is the culmination of years of hard work behind the scenes, and paves the way for a new era of European crowdfunding and P2P for business.
“We believe this is a historic moment,” says Francesca Passeri, deputy director at EuroCrowd.
“We are extremely excited about the opportunities this will offer to crowdfunding service providers in the years to come and we are very glad that the rules are flexible enough for platforms to switch from their incumbent national licences to a European one without too much hassle.
“By creating this new law as a stand-alone regulation, the sector has been protected from regulatory arbitrage of other market actors and will be able to develop a professional financial services sector.”
2021 is the year that EU crowdfunding became harmonised, but for EuroCrowd, the work has only just begun.
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