EBA consults on technical standards on crowdfunding service providers
EBA launched a consultation on the regulatory technical standards specifying the information that must be provided to keep investors appropriately informed about their risk exposure with respect to the individual portfolio management of loans. Article 6(7) of the European Crowdfunding Service Providers Regulation (ECSPR or Regulation 2020/1503) mandates EBA to lay out the draft regulatory technical standards for this purpose. The comment period for this consultation ends on September 04, 2021. Post which, EBA is expected to submit the final regulatory standards to EC in October 2021.
The proposed regulatory technical standards specify 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; the draft 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 single project, the portfolio, and the project owners
- Adequate policies, procedures, and governance arrangements that providers should have in place when managing, either directly or through a third party provider, contingency funds; this is because crowdfunding service providers may offer a dedicated contingency fund to compensate investors for the losses they may incur, in case project owners do not reimburse their loans
- Information disclosures required with respect to several key characteristics of each loan included in a certain portfolio
Crowdfunding risks may arise if investors underestimate the risks of their investment, assuming that every loan and project within a portfolio is subject to an adequate risk assessment process. Additionally, as crowdfunding is particularly relevant for small businesses and startups, often with little or no credit history, investors relying on these platforms may not be fully aware of the real quality of borrowers and may find it difficult to appreciate the risks involved for each of the loans in the portfolio. To avoid any misrepresentation of the underlying risk, the ECSPR makes it clear that the mere existence of these funds does not provide a guaranteed rate of return of the investment and that there is absolute discretion on potential refunds.
Related Links
Comment Due Date: September 04, 2021
Keywords: Europe, EU, Banking, Credit Risk, Portfolio Management, Crowdfunding, Crowdfunding Service Providers, ECSPR, Regulation 2020/1503, Disclosures, EBA
Related Articles
APRA Finalizes Guidance on Management of Climate Change Risks
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
European Council Adopts Position on Digital Finance Package Proposals
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
EC Proposes New Measures Under Capital Markets Union Package
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR
The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).
FED Outlines Lending Conditions and Supervisory Activities in H1 2021
The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.
APRA Expects Boards to Strengthen Ability to Oversee Cyber Resilience
The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.
FSB Updates List of Global Systemically Important Banks
The Basel Committee on Banking Supervision (BCBS) published further information related to its 2021 assessment of global systemically important banks (G-SIBs), with additional details to help understand the scoring methodology.
FASB Proposes Improvements to Credit Losses Standard
The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326.
US Agencies Issue Statement on Crypto-Asset Policy Initiatives
US Agencies issued a statement that summarizes the work undertaken during the interagency policy sprints focused on crypto-assets and provides a roadmap of future work related to crypto-assets.
