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Harmonized European Crowdfunding Rules Kickoff Allowing up to €5 million

Crowdfund Insider | | Nov 11, 2021

map of europe - Harmonized European Crowdfunding Rules Kickoff Allowing up to €5 millionHarmonized European crowdfunding laws commence today (November 10, 2021). After years of engagement by industry leaders, largely due to the efforts of EuroCrowd, issuers may now utilize investment platforms to sell securities across all EU member states.

The European Crowdfunding Service Providers Regulation (ECSPR) rules allow platforms to be licensed at the member state level but issue securities to investors across the EU. Companies may raise up to €5 million. Prior to ECSPR, issuers could raise money across different countries in Europe but also had to manage a diverse set of regulations thus adding unnecessary friction to the funding process.

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The EU explains:

“The EU market for crowdfunding is underdeveloped compared with other major world economies. For many years, one of the biggest hurdles faced by crowdfunding platforms seeking to offer their services across borders has been the lack of common rules and diverging licensing requirements across the European Union. This has resulted in high compliance and operational costs, which prevented crowdfunding platforms from efficiently scaling the provision of their services. As a result, small businesses had fewer financing opportunities available to them and investors had less choice and faced more uncertainty when investing cross-border.”

Many years in the making the new rules are expected to “increase the availability of this innovative form of finance, which will help companies seeking alternatives to bank financing.

Platforms and issuers must adhere to a set of requirements including disclosure and investor protection rules.

While the harmonized rules are actionable today for providers, final rules are still pending following a consultation by the European Securities and Markets Authority (ESMA) that is slated to reveal more granular details in May of 2022. It is not immediately clear as to when the first offering will be listed under ECSPR.

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As it stands at the moment, ESMA must create 12 technical standards and 8 regulatory technical standards as well as 4 implementing technical standards.

Details outstanding include:

  • Complaint handling;
  • Conflicts of interest;
  • Business continuity plan;
  • Application for authorisation;
  • Information to client on default rate of projects;
  • Entry knowledge test and simulation of the ability to bear loss;
  • Key investment information sheet;
  • Reporting by crowdfunding service providers to NCAs (and NCAs to ESMA); and
  • Publication of national provisions concerning marketing requirements.

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ESMA has already published a Q&A on special purpose vehicles (SPVs) an important clarification that makes it easier for issuers to manage shareholders and platforms to facilitate transactions. Draft technical standards may be viewed here.

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