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
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.
