European Union Approves New Crowdfunding Rules that Apply to Member States, Funding Cap Set at €5 Million

CrowdfundInsider | | Oct 6, 2020

European parliament - European Union Approves New Crowdfunding Rules that Apply to Member States, Funding Cap Set at €5 MillionEarlier today, the European Union approved crowdfunding rules that will apply to all member states thus finally offering a pan-European approach to online capital formation while removing much of the friction in the current ecosystem that suffers from regulatory fragmentation. Industry participants, along with industry associations, have long championed harmonized rules across the EU.

In a deal struck with the European Council last December pertaining to common rules for crowdfunding platforms, legislation was approved that will allow issuers the ability to raise up to €5 million during a 12 month period for the issuer. This amount is in contrast to €1 million that was previously proposed by the European Commission.

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The new rules seek to help crowdfunding services to function smoothly in the internal market and to foster cross-border business funding in the EU. The rules will apply to all European Crowdfunding Service Providers (ECSP). Investors will be provided with a “key investment information sheet” (KIIS) crafted by the issuer for each crowdfunding offer or at the platform level to maintain transparency and boost investor protection.

The objective is that crowdfunding service providers must provide investors with clear information about intrinsic risks and charges they may incur, including insolvency risks and project selection criteria.

Any ECSP must receive regulatory approval from the “national competent authority” (NCA) of the member state in which they are established to list securities offerings.  ECSP’s will be able to compete across the European Union and provide cross-border crowdfunding services via a notification procedure.

Supervision will be carried out by national competition authorities and with the European Securities and Markets Authority (ESMA) coordinating cooperation between EU member states.

Crowdfund Insider spoke with Ronald Kleverlaan, a crowdfunding expert and Chairman of Stichting MKB Financiering & Director European Centre for Alternative Finance at Utrecht University, for feedback on the announcement. We asked him about the impact of harmonized rules for the European Union. Kleverlaan said this will have a very big impact on the European crowdfunding market:

“[This] is a very welcome step for crowdfunding to become one of the leading sources of funding for the startup and SME finance market in the next decade in Europe,” said Kleverlaan. “By providing a strong legal framework it will give more trust to entrepreneurs en investors and will also enable platforms to operate on a pan-European scale. The regulation will make it also easier for platforms to attract additional co-funding from institutional funders, such as the European Investment Fund, and co-funding from banks or other investors.”

“Unfortunately, cryptoassets are kept outside this regulation. There will be a separate legal framework about a framework for cryptocurrencies and cryptoassets,” Kleverlaan added.

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NCFA Jan 2018 resize - European Union Approves New Crowdfunding Rules that Apply to Member States, Funding Cap Set at €5 Million The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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