EBA on Standards Related to Loan Portfolios of Crowdfunding Services
The European Banking Authority (EBA) published the final report on draft regulatory technical standards specifying the information that crowdfunding service providers offering individual portfolio management of loans shall provide to investors, in relation to the method to assess credit risk, and on each individual portfolio. The standards require crowdfunding service providers to show that the measurement techniques used for credit risk assessments are based on a sufficient number of elements and are appropriate to the complexity and level of the risks underlying the individual project, the portfolio, and the project owner. In addition, the final draft standards set out the information that crowdfunding platforms must disclose, namely the key characteristics of each individual portfolio.
These standards also specify the policies, procedures, and organizational arrangements that crowdfunding service providers shall have in place in relation to any contingency fund they may offer to investors. These standards are the first of two mandates assigned to EBA, with a view to contributing to a sound prudential and disclosure framework for crowdfunding service providers. The policies that the crowdfunding platform needs to have in place in relation to contingency funds are also specified in these standards. These policies aim to ensure that contingency funds have appropriate governance arrangements and procedures in place with respect to the collection of fees and disbursement of refunds. By means of these requirements, the draft technical standards are intended to mitigate the information gaps between project owners and investors and to ensure transparency and protection for investors.
These regulatory technical standards will be submitted to the European Commission for endorsement. After endorsement, the standards will be subject to scrutiny by the European Parliament and the Council, before being published in the Official Journal of the European Union. Article 6(7) of the European Crowdfunding Service Providers Regulation (ECSPR or Regulation 2020/1503) mandates EBA to submit draft regulatory technical standards to specify information that must be provided to investors to ensure they are appropriately informed about the risks they are exposed to when they invest in individual portfolio management of loans. ECSPR was issued with the aim to ensure uniform conditions for crowdfunding service providers across the European Union and to provide a robust framework for investor protection.
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Keywords: Europe, EU, Banking, Credit Risk, Portfolio Management, Crowdfunding, Crowdfunding Service Providers, ECSPR, Disclosures, Lending, EBA
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