The Crowdfunding Regulation creates a uniform set of rules for swarm funding across Europe. Among other things, direct lending without the interposition of a fronting bank is made possible for the first time. It also introduces a separate licensing procedure for the operators of crowdfunding platforms, which we present below:
1. Which platforms does the regulation affect?
The Crowdfunding Regulation (Regulation (EU)2020/1503 or ECSP Regulation) does not regulate all kinds of crowdfunding, but only certain forms:
|Crowdinvesting||Crowdsponsoring/ reward-based Crowdfunding|
The scope of application of the Crowdfunding Regulation is relevant primarily because the ECSP Regulation, as directly applicable EU law, supersedes national law. Therefore, there is no right to choose whether to apply for a permit under the ECSP Regulation or to retain the national license (e.g. under sections 34c, 34f GewO). Accordingly, a transitional period applies until which a permit as a crowdfunding service provider must be applied for. Otherwise, no new projects may be launched after the end of the transitional period (Art. 48 (1) ECSP Regulation).
With regard to lending platforms, the following picture has now crystallized: platforms that have operated “genuine crowdlending” to date (by brokering subordinated loans) will not fall under the scope of the ECSP Regulation in the future either. Platforms that grant unconditionally repayable loans by initially issuing the loans through a fronting bank (“non-genuine crowdlending”) are again likely to require a permit as a crowdfunding service provider.
2. Licensing application
Pursuant to Art. 12(1) ECSP Regulation, a legal entity wishing to provide swarm finance services shall apply for a permit from the competent authority of the Member State in which it is established.
Since the ECSP Regulation is directly applicable in all 27 member states, it is thus possible in principle to offer swarm financing services via a subsidiary from another member state, for example to Germany.
It has not yet been determined which authority will be responsible for granting the license in Germany. However, it is most likely that BaFin will be responsible. Since the transfer of responsibility for the supervision of financial investment intermediaries was already intended, no good reasons are apparent why supervision at the state level should be introduced.
The necessary content of the permit application is listed in Art. 12 para. 2 ECSP Regulation. Essentially, the following information is provided:
- Information on the applicant (company, contact details, legal form and articles of association),
- information on the business model (business plan, scope of the requested permission, member states in which the services are offered),
- description of the internal organization (in particular: risk management and accounting and IT security),
- information on the suitability and reliability of the business managers,
- a description of the internal control mechanisms for compliance with investor protection requirements (investment limits, completeness of information in the basic information sheet),
- information on payment flows (in particular integrated payment service provider),
- proof of sufficient equity or appropriate insurance.
The requirements are thus more similar to the application as an investment firm under the MiFID regime than to the application for a license as a financial investment intermediary according to sections 34f German Commercial Code (Gewerbeordnung, GewO).
The “grandfathering” in Art. 48 ECSP Regulation provides that the member states may grant facilitations in the licensing procedure to platforms that are already active as providers of swarm financing services. Whether and in what form such facilitations will be granted in Germany currently remains to be seen. However, if BaFin is designated as the competent authority, such facilitations are not very likely, as BaFin currently does not generally have any information on platforms offering crowdfunding services.
3. Permission procedure
On the other hand, the regulations on the approval procedure are much more pleasing.
The competent authority checks within 25 working days whether the application contains all the necessary information. If this is the case, it confirms that it is complete. If the authority determines that the application is incomplete, it shall request further information, setting a deadline. Once the application is complete, the authority checks within three months whether the permit requirements have been met.
The ECSP Regulation provides for legal relief for electronic money institutions, credit institutions, payment institutions and investment firms that apply for a permit as a swarm financing service provider in addition to their existing permit. Here, only such proofs have to be submitted that are no longer up to date (Art. 12 (14) ECSP Regulation).
4. Delegated acts
The ECSP Regulation provides for ESMA to develop drafts to specify the procedure and the forms to be used by November 10, 2021. On the basis of ESMA’s proposals, the Commission shall adopt delegated acts specifying the requirements for the permission procedure.
Particularly exciting are the requirements that ESMA will provide for the suitability of business managers. Particularly, but not only, in the startup sector, the expectations of the supervisory authority regularly collide here with those of the persons intended as business managers.
ESMA’s proposals on the provision of own funds or the possibilities under which a guarantee or insurance can be presented as an alternative instead of own funds will also be interesting.
The Crowdfunding Regulation significantly changes the requirements for crowdfunding. In particular, Europe-wide distribution, the possibility of granting “real” loans and the issuance of securities within the meaning of the Prospectus Regulation are good arguments in favor of a license as a crowdfunding service provider.
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