European crowdfunding regulation: overview of the key points
The text of law is now in the process of being adapted to the regime of each country of the European Community. It will come into effect on November 10, 2021.
The European Securities and Markets Authority (ESMA) has written a number of standards to clarify the regulation and its implementation.
To go further and include the sector in the implementation of the new regulation, ESMA has launched a consultation on 9 of the 12 technical standards of the regulation. The Regulatory Technical Standards are under public review until May 28.
In order to provide a collaborative response and best defend the interests of French platforms, the association Financement Participatif France has scheduled a series of working meetings with its members between March 17 and April 7.
FPF's member platforms are invited to express their recommendations, concerns and questions on the new measures.
Reminder of the main points of the new European regulation
At the initiative of the European Union, this regulation aims to mitigate the lack of a single market for crowdfunding within the EU and to promote the market of crowdfunding still undervalued compared to other major economic players.
By harmonizing the legal framework for crowdfunding at the European level, the European Commission also aims to improve access to finance for start-ups and SMEs and to promote the use of digital finance.
License and passport
The regulation provides for a mandatory status for participative financing activities in the form of subscription of securities and/or loans with interest. This new authorization does not concern interest-free loans, loans to individuals and donations.
Existing platforms will have one year from the entry into force of the regulation to apply for approval. A simplified application procedure is foreseen during this transitional period. After that, existing platforms will no longer be able to operate.
A platform wishing to offer cross-border services will have to apply for a "European passport " to the competent authority of its State. The application will include the list of Member States where the service provider wishes to operate as well as the list of legal or natural persons responsible for the service in the Member States.
The new regime is based on an Reception and Transmission of Orders (RTO) status and no longer on an advisory status as is the case in France. The platform remains responsible for the control of the information sheets and the implementation of controls for unsophisticated investors.
ECSPs will be able to offer additional services such as loan portfolio management or connection services with another platform and be compensated as a business introducer.
Platforms will also be able to offer a bulletin board allowing investors to advertise their buying or selling interest.
Fundraising threshold and investor category
The regulation has standardized **the fundraising threshold at €5,000,000 per project owner per year.
The new regulations focus on the opportunity to diversify and increase the number of projects per year as well as democratize access to funding for subscribers. New rules have been established to protect investors.
The regulation distinguishes two categories of subscribers. **Sophisticated" investors and " non-sophisticated" investors.
Non-sophisticated investors will be subject to a knowledge test and a simulation of their capacity to support losses. They will not be able to invest more than €1000 per project or 5% of their net assets. After the initial assessment, a new test will be proposed every two years to review the investor's experience.
In the event that an unsophisticated investor wishes to finance a project beyond the threshold, he/she will be required to receive a risk warning and give explicit consent.
Key Investment Information Sheet
The project owner is responsible for providing the platform with a Key Investment Information Sheet (KIIS). The competent authority may require the information sheet at least 7 days prior to the publication of the project.
The information sheet must be written in an official language or in a language accepted by the Member State where the approval is granted. Its content is specified in the regulation, **ESMA will propose templates specifying the conditions to be met.
The platform must put in place procedures to check the completeness of the information provided If an error is found, the project owner has 30 days to make a correction to the form or risk having its offer cancelled.
RTS consultation, the French market is preparing
ESMA proposes a consultation on 7 RTS and 2 ITS until May 28. The association Financement Participatif France has chosen to provide a collective response to the consultation and to be the voice of the French market.
The RTS concerned are the following:
- RTS 1 - Customer complaints on the platform (Article 7)
- RTS 2 - Conflicts of interest on the platform (Article 8)
- RTS 3 - Business continuity plan (Article 12)
- RTS 4 - Application procedure for approval of platforms (Article 12)
- RTS 5 - Default rate indicators (Article 20)
- RTS 6 - Knowledge test and loss simulation tool (Article 21)
- RTS 7 - KIIS (Key Investment Information Sheet) (Article 23)
Mipise invites its client platforms white label crowdfunding solution members of FPF as well as the platforms concerned by the new regulation to register for the meetings.
This is an opportunity to express your views collectively and to share your questions, recommendations and best practices regarding the implementation of these RTS.
The consultation proposed by ESMA is ongoing until May 28. It is also possible for each platform to propose an individual response.