EU Finalizes Rules Under Crowdfunding Service Providers Regulation
The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers. These regulations include nine sets of regulatory technical standards and four sets of implementing technical standards under the European Crowdfunding Service Providers Regulation (Regulation 2020/1503 or ECSP). The date of effect for these regulations is November 28, 2022.
The Regulation on European Crowdfunding Service Providers lays down uniform rules across European Union for the provision of investment-based and lending-based crowdfunding services related to business financing. It allows platforms to apply for an EU passport based on a single set of rules, which makes it easier for them to offer their services across the European Union with a single authorization. The existing crowdfunding platforms with prior authorization under national rules had to receive authorization under the new regulatory framework by November 10, 2022. To accommodate a smooth transition into the new regime and ensure continuity of services, this transitional period has been extended to November 10, 2023 through the adoption of a Commission Delegated Act (2022/1988). The recently published nine Commission Delegated Regulations lay out the regulatory technical standards supplementing the Crowdfunding Regulation that specify:
- requirements and arrangements for the application for authorization as a crowdfunding service provider (Regulation 2022/2112)
- conflicts of interest requirements for crowdfunding service providers (Regulation 2022/2111)
- standards for the exchange of information between competent authorities in relation to investigation, supervision, and enforcement activities in relation to European crowdfunding service providers for business (Regulation 2022/2113)
- the entry knowledge test and the simulation of the ability to bear loss for prospective non-sophisticated investors in crowdfunding projects (Regulation 2022/2114)
- the methodology for calculating default rates of loans offered on a crowdfunding platform (Regulation 2022/2115)
- the measures and procedures for crowdfunding service providers’ business continuity plan (Regulation 2022/2116)
- the requirements, standard formats, and procedures for complaint handling (Regulation 2022/2117)
- standards on individual portfolio management of loans by crowdfunding service providers, specifying the elements of the method to assess credit risk, the information on each individual portfolio to be disclosed to investors, and the policies and procedures required in relation to contingency funds (Regulation 2022/2118)
- standards for the key investment information sheet (Regulation 2022/2119)
In addition, the following four implementing regulations lay down the implementing standards for the application of the Crowdfunding Regulation with regard to
- data standards and formats, templates, and procedures for reporting information on projects funded through crowdfunding platforms (Regulation 2022/2120)
- standard forms, templates, and procedures for the cooperation and exchange of information between competent authorities and ESMA in relation to European crowdfunding service providers for business (Regulation 2022/2121)
- standard forms, templates, and procedures for the cooperation and exchange of information between competent authorities concerning European crowdfunding service providers for business (Regulation 2022/2122)
- the standard forms, templates, and procedures for the notifications of national marketing requirements applicable to crowdfunding service providers by competent authorities to ESMA (Regulation 2022/2123)
These rules are expected to increase the availability of this innovative form of finance, which will help companies seeking alternatives to bank financing. Investors on crowdfunding platforms will benefit from an aligned and enhanced investor protection framework, based on clear rules on information disclosures for project owners and crowdfunding platforms and rules on governance and risk management for crowdfunding platforms. Strong and harmonized supervisory powers for national authorities overseeing the functioning of crowdfunding platforms is another benefit.
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Keywords: Europe, EU, Banking, Crowdfunding Regulation, Crowdfunding Service Providers, Regulatory Technical Standards, Implementing Technical Standards, Lending, Credit Risk, P2P Lending, ESMA, EC
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