The Crowdfunding Regulation (ECSPR – European Crowdfunding Service Provider Regulation) has now been in force since November 2021, thus, the transitional period for existing providers will expire in November 2022. By this date at the latest, crowdfunding platforms within the meaning of the ECSPR should have obtained the corresponding permission under the regulation in order to be able to offer services subject to the scope of application.
Why give up permission?
Accordingly, various providers have conducted an internal assessment of whether they fall within the scope of the ECSPR and, if so, whether licensing under the regulation is actually and economically feasible. As expected, some providers have found that their own licence as a “crowd finance service provider” under the ECSPR is not profitable or that the effort required to obtain and maintain the licence is not commensurate with the business activity. This suggests a solution that is already being used in many ways in the financial world: the integration of a licensed third party and then continuing to offer services under this “umbrella of liability” of a licensed crowdfunding service provider as a “tied agent” without a licence.
What concerns does the supervisory authority have?
At present, however, the BaFin as the responsible supervisory authority does not seem to be very open to this solution. And not without reason. The tied agent, as long provided for in the KWG (§ 2 para. 10 KWG) and now in the WpIG (§ 3 para. 2 WpIG), has been based on regulations contained therein since the implementation of the Second Financial Markets Directive (MiFID II) (cf. for example Art. 29 MiFID II). Unfortunately, the ECSPR does not contain such regulations. First of all, this is consistent insofar as the tied agent can be appointed for “the transmission of orders, the placement of financial instruments and advice in relation to the financial instruments and services offered by the investment firm” (Art. 29 para. 1 MiFID II). However, the placement of crowdfunding offers or the acceptance and transmission of client orders between promoter and investor(s) is precisely the service that requires a licence under the ECSPR. The tied agent within the meaning of the MiFID is thus supposed to perform a merely “supporting” activity. In view of the limited scope of the ECSPR, there is little room for a tied agent to provide support if it basically already performs all the central services (as defined by the ECSPR) itself.
What does the Commission say about this?
In the meantime, the European Commission has made a commitment and clarified in ESMA’s FAQ on the ECSPR that there should in any case be no tied intermediary providing crowdfunding services (on behalf of the crowdfunding service provider) under the ECSPR (see response 3.6 of 19.5.2022). Only the use of “tied agents” to promote the platform itself is to be permitted. In detail ESMA writes: “The ECSPR does not provide a regulatory framework for tied agents. Therefore, there is no possibility for tied agents to provide crowdfunding services on behalf of the CSP under ECSPR. Nonetheless, the CSP can designate tied agents to promote the CSP’s services. Such activity will be subject to national law…”
Against this background, there is currently some discussion in the market as to whether it might not be possible to outsource the crowd financing services. Article 9 of the ECSPR contains its own provisions on outsourcing, which means that this possibility should exist in principle. However, two aspects must be taken into account with this approach: On the one hand, the outsourcing regulations of the ECSPR are less detailed than the sibling norms in the KAGB and the WpIG. On the other hand, it also applies in the related outsourcing regimes of the KAGB as well as the WpIG that an outsourcing of regulated activities is only possible if the third party to which services are outsourced has its own corresponding licence. At least the latter aspect seems to complicate, if not block, this approach with regard to the outsourcing of crowd finance services within the meaning of the ECSPR.
Are there other solutions?
This raises the practical question: Is there no solution at all as to how white label products or “licence-as-a-service” models can be realised under the ECSPR? Perhaps there is. A similar problem has already arisen for some time under the Germany Payment Act (implementing PSD) for account information and payment initiation services. It is worthwhile for very few providers only to apply for their own licence or registration. The solution that is used in practice is a tripartite contract in which only the regulated service is provided by the account information or payment initiation service, while other services – such as the mediation of loans or online trading – are provided by another (non-licensed) provider. In our view, obvious regulatory reasons do not speak against transferring the model to the ECSPR as well. Whether this will prevail in practice (including BaFin’s administrative practice) remains to be seen, of course.