The new European Regulation on crowdfunding
On 5 October, the European Parliament approved a new regulation with the ambitious scope of granting to crowdfunding platforms to more easily provide their services on the EU single market (the “Regulation”). The desired effect is to allow start-ups, innovators and small businesses to expand their investor base thanks to a wider range of projects and greater protection from potentially related risks.
As of today, a strong limitation for crowdfunding has been the lack of a specific regulatory and supervisory regime at the European level. Consequently, at a national level, some Member States applied financial services legislation to crowdfunding service providers, while others allowed them to remain outside any regulation and thus operate within the scope of operational exemptions of specific business models. At the same time, other Member States (including Italy) have implemented specific regulation for crowdfunding having understood (or being concerned about) the potential that crowdfunding platforms can have: being an important source of non-bank financing as an intermediary between investors and businesses, allowing the former to more easily identify the projects of their interest and support them.
In 2018, the European Parliament thus initiated the legislative process, which ended precisely on 5 October with the final approval of the Regulation, to facilitate the expansion of crowdfunding services in the internal market by increasing access to finance for entrepreneurs. start-ups and expanding businesses. The complete text of the Regulation has yet to be published, but some relevant aspects may already be anticipated.
What the new regulation provides for
Firstly, the new rules will be applied to crowdfunding service providers who collect up to five million euros per participatory funding campaign per year. This amount superseded the previous proposal of the European Commission of limiting the collection to only one million euros per project (for twelve months).
To increase investor confidence, the Regulation then provides that the issuer or the platform itself shall release, for each collection campaign, a key investment information sheet. In this way, customers will have clear information on the financial and insolvency risks, the selection criteria for the same project and on any costs to be borne for each project.
The operation of the new platforms shall be authorized by the competent national authorities of the Member State in which they reside. The platforms might offer their services in the other Member States through a notification process in the Member State concerned.
The supervision will be conducted by national antitrust authorities, with the European Securities and Markets Authority (ESMA) acting as facilitator and coordinator of collaboration between Member States.
The European institutions believe that with the Regulation crowdfunding will contribute to the achievement of the general objectives of the capital Markets Union, favouring both a more sustainable financial integration and private investments, for the benefit (hopefully also) of job creation and economic growth.
Luca Condoleo