What is the purpose of the proposed regulations?
The Council states that its position:
- removes barriers for crowdfunding platforms operating cross-border;
- provides tailored rules for EU crowdfunding businesses depending on whether they provide their funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds);
- provides a common set of prudential, information and transparency requirements to ensure a high level of investor protection; and
- defines common authorisation and supervision rules for national competent authorities.
As we reported earlier this year in detail (see below), the Crowdfunding Regulation would achieve these aims by:
- allowing crowdfunding platforms to apply for a single, Union-wide authorisation to carry out crowdfunding services cross-border in the EU market;
- creating 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
- ensuring 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.
The Council’s compromise position
The Council’s compromise proposal implements some of the MEPs’ proposed amendments at first reading, including extending 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), but the Council has not accepted all the changes. Proposals to require crowdfunding service providers to disclose annually the default rates of the crowdfunding projects offered on their platforms, for example, have been softened to allow platforms to merely make such information available and update it periodically. Similarly, the proposed requirement for platforms to include information about their own insolvency risk in all marketing communications has not been accepted by the Council.
The publication of the Council’s position takes the legislative process a step further towards bringing the Crowdfunding Regulation into law, but as a text is not yet agreed there is no clear timetable for implementation. Moreover, under the transitional provisions in the current proposal, the regulations would not apply for a year after they enter into force. The next step is for the Council and the Parliament to negotiate to agree a draft text.
The position for firms in the UK
In the UK, the FCA’s rules for crowdfunding platforms could be subject to amendments if the Crowdfunding Regulation imposes requirements that go beyond the UK rules, in addition to the recent changes to the rules for P2P platforms (see below). At the same time, crowdfunding platforms already operating cross-border or looking to expand into new markets in the EU will welcome the fact that the Crowdfunding Regulation would offer 'one-stop-shop' authorisation to provide services throughout the EU. Firms should monitor developments closely, taking into account the potential impact of Brexit.
Our reports on the FCA’s new rules for P2P platforms and on the European Parliament’s position are available here and here. Our other publications on this and other topics can be found on CMS RegZone and Law-Now.