European crowdfunding service providers for business

 

SUMMARY OF:

Regulation (EU) 2020/1503 on European crowdfunding service providers for business

WHAT IS THE AIM OF THE REGULATION?

It sets out common rules for:

• providing crowdfunding services*;
• organising, authorising and supervising crowdfunding service providers;
• applying transparency and marketing crowdfunding services.

KEY POINTS

Crowdfunding service providers must:

• be officially authorised;
• act honestly, fairly and professionally in the best interests of their clients;
• not accept any reward for routing investors’ orders to a particular crowdfunding offer;
• carry out a minimum level of due diligence of project owners* seeking crowdfunding;
• have in place effective and transparent procedures for the prompt, fair and consistent handling of complaints from clients;
• comply with conflict of interest requirements, such as the prohibition to invest in any offer on their own platforms;
• take reasonable steps to avoid additional risk when outsourcing any functions;
• comply with specific prudential safeguards;
• provide national authorities with an annual confidential list of projects funded through their platforms;
• keep records of their services and transactions for at least 5 years.

The management body of a crowdfunding service provider must establish and oversee adequate policies and procedures to ensure effective and prudent activity.

National authorities:

• must carefully vet a legal person intending to provide crowdfunding services;
• must decide, within 3 months of receiving a complete application, whether to authorise or reject a prospective crowdfunding service provider;
• may withdraw their authorisation for subsequent illegal behaviour or non-use of the platform for 9 successive months;
• must publish on their websites up-to-date information on national laws and regulations applying to crowdfunding service providers’ marketing material;
• have specific investigatory powers, including on-site inspections;
• must cooperate and exchange information with each other and with the European Securities and Markets Authority (ESMA);
• must operate a complaints procedure for clients, interested parties and consumer associations;
• may apply administrative penalties (in addition to their right to impose criminal penalties).

ESMA must:

• develop and submit draft regulatory technical standards to support the legislation to the European Commission ;
• establish a publicly available register on its website of all crowdfunding service providers.

Measures to ensure investor protection require crowdfunding service providers to:

• ensure that all information and marketing material provided to clients is fair, clear and not misleading;
• disclose annually the default rates of crowdfunding projects on their lending-based platforms over at least the 3 preceding years;
• publish an outcome statement within 4 months of the end of each financial year;
• assess whether any of their services would be appropriate for prospective non-professional clients (‘non-sophisticated investors’) and provide a 4-day reflection period before giving them full access to invest in crowdfunding projects;
• give prospective investors a detailed key investment sheet, including a warning of possible financial loss.

The regulation does not apply to individuals using crowdfunding for personal reasons (i.e. not for their business, trade or profession) or to campaigns of over €5 million, which are regulated by Directive 2014/65/EU on financial markets (MiFiD II – see summary) and Regulation (EU) 2017/1129 on prospectuses to be published when securities are issued and offered to the public (see summary).

Implementing and delegated acts

In the following implementing acts, the Commission has adopted technical standards for the application of Regulation (EU) 2020/1503:

• Regulation (EU) 2022/2120 – data standards and formats, templates and procedures for reporting information on projects funded through crowdfunding platforms;
• Regulation (EU) 2022/2121 – 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 (EU) 2022/2122 – standard forms, templates and procedures for the cooperation and exchange of information between competent authorities concerning European crowdfunding service providers for business;
• Regulation (EU) 2022/2123 – standard forms, templates and procedures for the notifications of national marketing requirements applicable to crowdfunding service providers by competent authorities to ESMA.

It has also adopted the following delegated acts in relation to Regulation (EU) 2020/1503:

• Regulation (EU) 2022/1988 extending the transitional period for continuing to provide crowdfunding services in accordance with national law;
• Regulation (EU) 2022/2111 – conflicts of interest requirements for crowdfunding service providers;
• Regulation (EU) 2022/2112 – requirements and arrangements for the application for authorisation as a crowdfunding service provider;
• Regulation (EU) 2022/2113 – 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 (EU) 2022/2114 – the entry knowledge test and the simulation of the ability to bear loss for prospective non-sophisticated investors in crowdfunding projects;
• Regulation (EU) 2022/2115 – methodology for calculating default rates of loans offered on a crowdfunding platform;
• Regulation (EU) 2022/2116 – measures and procedures for crowdfunding service providers’ business continuity plan;
• Regulation (EU) 2022/2117 – requirements, standard formats and procedures for complaint handling;
• Regulation (EU) 2022/2118 – 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; and
• Regulation (EU) 2022/2119 – standards for the key investment information sheet.

Reports

The Commission:

• by 10 May 2022, must assess the impact of the regulation on purely national crowdfunding services and decide on the extension of the transitional period for platforms authorised before 10 November 2021 (see Delegated Regulation (EU) 2022/1988);
• must present a report on implementation of the legislation to the European Parliament and to the Council of the European Union before 10 November 2023.

The legislation amends Regulation (EU) 2017/1129 on prospectuses and Directive (EU) 2019/1937 on protecting individuals who report breaches of EU law (see summary).

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 10 November 2021.

BACKGROUND

• Crowdfunding is a form of financing directly connecting people who can give, lend or invest money with those who need funding for a specific project.
• The European Union rules make it easier for crowdfunding platforms to develop and offer their services across national borders under a single regime. For small investors and businesses, especially start-ups, they improve access to this innovative form of finance. For investors, they provide better protection and a higher level of guarantees.
• The regulation is part of the technology-enabled innovation in financial services (FinTech) action plan that the Commission presented in March 2018.
• For further information, see:
  • Crowdfunding (European Commission).

KEY TERMS

MAIN DOCUMENT

Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (OJ L 347, 20.10.2020, pp. 1–49).

RELATED DOCUMENTS

Commission Delegated Regulation (EU) 2022/2111 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards specifying conflicts of interest requirements for crowdfunding service providers (OJ L 287, 8.11.2022, pp. 1–4).

Commission Delegated Regulation (EU) 2022/2112 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards specifying requirements and arrangements for the application for authorisation as a crowdfunding service provider (OJ L 287, 8.11.2022, pp. 5–21).

Commission Delegated Regulation (EU) 2022/2113 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical 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 (OJ L 287, 8.11.2022, pp. 22–25).

Commission Delegated Regulation (EU) 2022/2114 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards specifying the entry knowledge test and the simulation of the ability to bear loss for prospective non-sophisticated investors in crowdfunding projects (OJ L 287, 8.11.2022, pp. 26–32).

Commission Delegated Regulation (EU) 2022/2115 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards specifying the methodology for calculating default rates of loans offered on a crowdfunding platform (OJ L 287, 8.11.2022, pp. 33–37).

Commission Delegated Regulation (EU) 2022/2116 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards specifying the measures and procedures for crowdfunding service providers’ business continuity plan (OJ L 287, 8.11.2022, pp. 38–41).

Commission Delegated Regulation (EU) 2022/2117 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards specifying the requirements, standard formats and procedures for complaint handling (OJ L 287, 8.11.2022, pp. 42–49).

Commission Delegated Regulation (EU) 2022/2118 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical 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 (OJ L 287, 8.11.2022, pp. 50–62).

Commission Delegated Regulation (EU) 2022/2119 of 13 July 2022 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards for the key investment information sheet (OJ L 287, 8.11.2022, pp. 63–75).

Commission Implementing Regulation (EU) 2022/2120 of 13 July 2022 laying down implementing technical standards for the application of Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to data standards and formats, templates and procedures for reporting information on projects funded through crowdfunding platforms (OJ L 287, 8.11.2022, pp. 76–85).

Commission Implementing Regulation (EU) 2022/2121 of 13 July 2022 laying down implementing technical standards for the application of Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to 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 (OJ L 287, 8.11.2022, pp. 86–100).

Commission Implementing Regulation (EU) 2022/2122 of 13 July 2022 laying down implementing technical standards for the application of Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to standard forms, templates and procedures for the cooperation and exchange of information between competent authorities concerning European crowdfunding service providers for business (OJ L 287, 8.11.2022, pp. 101–119).

Commission Implementing Regulation (EU) 2022/2123 of 13 July 2022 laying down implementing technical standards for the application of Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to the standard forms, templates and procedures for the notifications of national marketing requirements applicable to crowdfunding service providers by competent authorities to ESMA (OJ L 287, 8.11.2022, pp. 120–125).

Commission Delegated Regulation (EU) 2022/1988 of 12 July 2022 extending the transitional period for continuing to provide crowdfunding services in accordance with national law as referred to in Article 48(1) of Regulation (EU) 2020/1503 of the European Parliament and of the Council (OJ L 273, 21.10.2022, pp. 3–4).

Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law (OJ L 305, 26.11.2019, pp. 17–56).

Successive amendments to Directive (EU) 2019/1937 have been incorporated into the original text. This consolidated version is of documentary value only.

Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions – FinTech Action plan: For a more competitive and innovative European financial sector (COM(2018) 109 final, 8.3.2018).

Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (OJ L 168, 30.6.2017, pp. 12–82).

See consolidated version.

Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) (OJ L 173, 12.6.2014, pp. 349–496).

See consolidated version.

Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, pp. 84–119).

See consolidated version.

Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes (OJ L 84, 26.3.1997, pp. 22–31).

last update 16.02.2023