Crowdfunding: European Parliament steps up investor protection in its amendments to proposed regulation


What would the Commission's proposed Crowdfunding Regulation do?

The Commission proposed the Crowdfunding Regulation in response to the growth in start-ups and SMEs accessing funding for new projects through crowdfunding businesses providing loan and investment services through predominantly online platforms. The key innovations of the legislation would be to:

  • allow crowdfunding platforms to apply for a single, Union-wide authorisation to carry out crowdfunding services cross-border in the EU market;
  • create tailored rules for crowdfunding service providers in the EU recognising these new routes for start-ups and SMEs to raise funding, and covering both investment-based and lending-based business models; and
  • nsure investors are protected uniformly across the EU when accessing crowdfunding investment opportunities, for example by providing that investors must be informed about the risks associated with crowdfunding, and assessed on their understanding of financial products before being allowed to invest.


MEPs' position after first reading

After its first reading, the European Parliament was supportive of the Commission's initiatives and confirmed the position of the Economic and Monetary Affairs Committee, which adopted a draft report on the proposals in November 2018. The most significant amendments agreed by MEPs are:

  • to extend the scope of the legislation to include crowdfunding offers of up to EUR 8,000,000 (the Commission had originally proposed that the rules only apply to offers up to EUR 1,000,000);
  • to require crowdfunding service providers to disclose annually the default rates of the crowdfunding projects offered on their platforms over at least the preceding 24 months; and
  • to specify that all marketing communications to clients must provide information about the financial risks and charges related to crowdfunding services, including the insolvency risk of the platforms themselves (as opposed to the projects offered through those platforms).


Recent developments in UK regulation of crowdfunding platforms

The FCA's latest consultation on UK regulation of crowdfunding businesses in July 2018 aimed to assess whether the existing crowdfunding regulatory framework is effective in regulating increasingly complex loan-based crowdfunding models. This consultation closed in October 2018, with the responses and a policy statement expected to be published in the second quarter of 2019. 

Against this background, in March 2019 the FCA published a new Dear CEO Letter to Loan-based Peer-to-Peer (P2P) crowdfunding platforms setting out its concerns about certain industry practices. 

What next?

Crowdfunding service providers already operating cross-border or looking to expand into new markets in the EU will welcome the fact that, if enacted in its current form, the Crowdfunding Regulation would offer 'one-stop-shop' authorisation to provide services throughout the EU. At the same time firms must be aware of any disclosure requirements that would go beyond their current national regimes. Although it remains to be seen whether the UK would have regard to EU policy in this area after Brexit, given the FCA's focus on crowdfunding in recent months and new policy announcements expected in the near future, platforms and P2P lenders in the UK should follow both EU and UK developments closely to ensure they can comply and continue growing their businesses in this developing sector.

Co-authored by Maggie Lund