Following up on Eugene's post in March, Freshfields have produced a briefing on the European Commission's proposals to complete the Capital Markets Union by 2019. The full briefing is available here (behind a firewall), but I thought it worth providing a flavour of its contents by pasting the summary of the crowdfunding proposals.
The briefing also includes quite a bit of detail on the Fintech Action Plan, as well as on the sustainable finance proposals.
As part of the Fintech Action Plan, the Commission has published the proposed Regulation on European Crowdfunding Service Providers for Business (Crowdfunding Regulation). The proposed Regulation is designed to establish uniform rules on crowdfunding at EU level by providing for an EU legal framework for investment-based and lending or loan-based crowdfunding platforms to enable these platforms to offer their services EU-wide (through passporting) and to improve access to this innovative form of finance for businesses requiring funding.
The Crowdfunding Regulation will apply to crowdfunding offers that do not exceed €1 million calculated over a period of 12 months. Whereas the Crowdfunding Regulation does not intend to interfere with national bespoke crowdfunding regimes or existing licences, including those under the revised Markets in Financial Instruments Directive (MiFID 2), PSD 2 or the Alternative Investment Fund Managers Directive, the Commission has issued a proposal for a Directive amending MiFID 2 to specify that MiFID 2 does not apply to persons authorised as crowdfunding service providers as defined in the proposed Crowdfunding Regulation.
Provisions in the Crowdfunding Regulation include:·
- authorisation and ongoing supervision requirements: crowdfunding service providers will need to satisfy a number of criteria in order to be authorised by the European Securities and Markets Authority (ESMA), who will keep an up-to-date,publicly available register of all authorised crowdfunding providers and in the event of serious infringement of the provisions of the Crowdfunding Regulation, ESMA will have the power to withdraw such authorisation;
- investor protection and transparency: any information from crowdfunding service providers to clients must be complete, clear and correct; crowdfunding service providers will need to assess the appropriateness of a particular crowdfunding service in respect of prospective investors; and the project owner of each crowdfunding offer will be required to provide prospective investors with a “key investment information sheet” with the information to be contained therein specified in the annex to the Crowdfunding Regulation. This includes a description of crowdfunding risks. In addition, investors will have the right to access records crowdfunding service providers are required to keep for five years;
- marketing communications: such communications to investors should be clearly identifiable as such; and national competent authorities (NCAs) will be required to maintain all national laws, regulations and administrative provisions applicable to marketing communications to crowdfunding providers in the NCAs’ websites and to notify ESMA of this, providing ESMA with a link to their website;
- ESMA’s powers and competence: these will be wide-ranging including a power to request information; the conduct of general investigations and on-site inspections;exchange of information with NCAs; and the ability to take supervisory measures andimpose sanctions such as fines; and
- appropriate safeguards to minimise risks of money laundering and terrorism financing: payments for crowdfunding should only be made and received through entities compliant with PSD 2, and therefore, subject to the Fourth Money Laundering Directive and managers of the crowdfunding service providers should have “good repute”.