Europaudvalget 2016
SWD (2016) 0154
Offentligt
1628213_0001.png
EUROPEAN
COMMISSION
Brussels, 3.5.2016
SWD(2016) 154 final
COMMISSION STAFF WORKING DOCUMENT
Crowdfunding in the EU Capital Markets Union
EN
EN
 swd (2016) 0154 (forslag) - COMMISSION STAFF WORKING DOCUMENT Crowdfunding in the EU Capital Markets Union
Table of Contents
1.
2.
INTRODUCTION ....................................................................................................... 3
UPDATE ON COMMISSION SERVICES' WORK ON CROWDFUNDING ......... 5
2.1. The Capital Markets Union Green Paper and Action Plan ............................... 5
2.2. Workshops, studies, and awareness-raising initiatives ..................................... 6
2.3. Work by the European Supervisory Authorities ............................................... 8
3.
CURRENT STATUS OF CROWDFUNDING IN THE EU ...................................... 8
3.1. Crowdfunding business models......................................................................... 8
3.2. Current status of the EU crowdfunding market................................................. 9
3.3. Emerging trends in crowdfunding ................................................................... 12
3.4. Potential risks related to crowdfunding ........................................................... 15
4.
THE
REGULATORY
ENVIRONMENT
FOR
CROWDFUNDING
ACTIVITIES ............................................................................................................. 17
4.1. Regulation of investment-based crowdfunding ............................................... 18
4.1.1.
4.1.2.
4.1.3.
4.2.1.
4.2.2.
4.2.3.
5.
Getting authorised ............................................................................. 18
Conduct of business, conflict of interest and organisational rules .... 20
Investor protection measures ............................................................. 21
Getting authorised ............................................................................. 26
Lending and credit intermediation .................................................... 26
Money handling ................................................................................. 28
4.2. Regulation of lending-based crowdfunding .................................................... 25
EXTENT OF CROSS-BORDER ACTIVITIES ....................................................... 29
5.1. Investment-based crowdfunding ..................................................................... 29
5.2. Lending-based crowdfunding .......................................................................... 30
6.
CONCLUSIONS ....................................................................................................... 30
ANNEX 1: MAIN TYPES OF BUSINESS MODELS OF CROWDFUNDING ............ 32
ANNEX 2: OVERVIEW OF CROWDFUNDING REGULATORY FRAMEWORKS
IN A SELECTION OF EU MEMBER STATES...................................................... 34
2
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C
OMMISSION
S
TAFF
W
ORKING
D
OCUMENT ON
C
ROWDFUNDING IN THE
EU C
APITAL
M
ARKETS
U
NION
1.
I
NTRODUCTION
Broadening access to finance for innovative companies, start-ups and other unlisted firms,
including SMEs, is at the heart of the Capital Markets Union Action Plan.
1
On average around
60% of start-ups survive the first three years of activity, and those that do contribute
disproportionately to job creation.
2
Young firms account for an average of only 17% of
employment, but they create 42% of new jobs.
3
Therefore, the success of these firms is crucial
to the future of jobs and economic growth in Europe.
However, in today's economic environment securing investment finance is challenging for
these firms, particularly when they move from start-up into the expansion phase. As stated in
the CMU Action Plan, the Commission's top priority is to stimulate investment to create jobs
and increase Europe's competitiveness. The Capital Markets Union will reinforce the third
pillar of the Investment Plan for Europe.
Access to finance for young, innovative firms is a problem even in countries where access to
bank finance has remained stable throughout the crisis. Thanks to their strong local networks
and relationships, banks will continue to provide the majority of funding to SMEs. However,
only 41% of all SMEs in the EU perceive no limitations in their access to future financing.
4
To complement bank financing, the CMU Action Plan seeks to strengthen the different
sources of alternative finance, including crowdfunding.
In addition to providing an alternative source of financing directly, crowdfunding can offer
other benefits to firms: it can give a proof of concept and idea validation to the project seeker;
it can help attract other sources of funding, such as venture capital and business angels; it can
give access to a large number of people providing the entrepreneur with insights and
information; and it can be a marketing tool if a campaign is successful.
By providing an online marketplace to match investors and investees or lenders and
borrowers, investment-based and lending-based crowdfunding can bring more competition
into retail and capital markets. Crowdfunding can be seen as one part of the broader universe
1
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Regions,
Action Plan on Building a Capital Markets Union,
COM(2015) 468/2, 30.09.2015.
OECD (2015),
OECD Science, Technology and Industry Scoreboard 2015: Innovation for growth and
society,
OECD Publishing, Paris.
Calvino,F., C. Criscuolo and C. Menon (2015), (2016), "No Country for Young Firms? Start-up Dynamics
and National Policies", OECD Science, Technology and Industry Policy Papers, No. 29, OECD Publishing,
Paris.
European Commission (2015),
Survey on the Access to Finance of Enterprises (SAFE): Analytical Report,
p.5.
2
3
4
3
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of the technological innovations with potentially transformative implications for the financial
system, its intermediaries and users ("FinTech").
5
As with all investments, crowdfunding also entails a number of risks (such as project and
liquidity risks, platform failure, cyber-attack) and concerns (for instance investors’
inexperience, reliability of the investment, lack of regulation or different regulatory regimes)
for retail investors and microenterprises. But with appropriate safeguards concerning investor
protection, crowdfunding can be an important source of non-bank financing in support of job
creation, economic growth and competitiveness.
The European Parliament has also taken an active interest in crowdfunding. The European
Parliament resolution of 9 July 2015 on Building a Capital Markets Union
6
states that "the
CMU should create an appropriate regulatory environment that enhances cross-border access
to information on the companies looking for credit, quasi-equity and equity structures, in
order to promote growth of non-bank financing models, including crowdfunding and peer-to-
peer lending". The European Parliament resolution of 19 January 2016 on stocktaking and
challenges of the EU Financial Services Regulation
7
underlines the potential of innovative
market-based funding, in particular the opportunities of financial technologies, including
crowdfunding and peer-to-peer loans, and stresses the need to streamline the respective
regulatory requirements. The resolution asks the Commission to give breathing space for the
emergence of these new models and to explore and promote them, giving priority to their
cross-border dimension and ensuring the reduction of market entry barriers
The purpose of this report is to assess national regimes, identify best practice, and present the
results of the Commission's monitoring of the evolution of the crowdfunding sector. It shows
that crowdfunding can give a significant contribution to the CMU Action Plan objective of
helping mobilise capital in Europe and channel it to all companies, including SMEs. Its share
of the total funding of European businesses is still relatively small, but it has been growing
fast, especially in some Member States.
At the same time, cross-border project funding is still limited. Because crowdfunding remains
to a large extent a regional or local phenomenon, several Member States have already
introduced or are planning to introduce domestic bespoke regimes on crowdfunding. Overall,
these domestic regimes are consistent in their broad approach, as they aim at enabling the
development of this source of funding while addressing key risks that may arise, notably for
investors. But Member States are tailoring their regulatory frameworks to the characteristics
5
The European Commission intends to present a Communication on the collaborative economy in the second
quarter of 2016.
European Parliament resolution of 9 July 2015 on Building a Capital Markets Union (2015/2634(RSP)).
Available at:
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2015-
0268+0+DOC+XML+V0//EN.
European Parliament resolution of 19 January 2016 on stocktaking and challenges of the EU Financial
Services Regulation: impact and the way forward towards a more efficient and effective EU framework for
Financial Regulation and a Capital Markets Union (2015/2106(INI)), available at:
http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P8-TA-2016-
0006&language=EN&ring=A8-2015-0360.
6
7
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and needs of local markets and investors, which results in differences on how the rules are
designed and implemented.
In light of the situation, the Commission Services will continue to monitor market and
regulatory developments, and encourage closer alignment of regulatory approaches and
sharing of best practice.
The staff working document is structured as followed:
Section 2 takes stock of the work that has been carried out by the Commission Services
since the adoption of the 2014 Communication on crowdfunding
8
;
Section 3 reviews the current status of crowdfunding in the EU, with a particular focus on
market developments and innovative business models;
Section 4 gives an overview of domestic regulatory and supervisory arrangements in EU
Member States;
Section 5 appraises the extent of cross-border crowdfunding activities;
Sections 6 sets out some conclusions.
2.
U
PDATE ON
C
OMMISSION
S
ERVICES
'
WORK ON CROWDFUNDING
In its 2014 Communication the Commission committed to report on developments in
crowdfunding. The purpose of this section is to give an overview of the work carried out since
then.
2.1.
The Capital Markets Union Green Paper and Action Plan
In February 2015 the Commission adopted a Green Paper on building a Capital Markets
Union which sought stakeholder views on whether there are barriers to the development of
appropriately regulated crowdfunding or peer to peer platforms, including on a cross border
basis, and how these barriers should be addressed.
Respondents to the CMU Green Paper consultation
9
identified a number of barriers to the
development of appropriately regulated crowdfunding platforms: regulatory barriers, poor
availability and quality of information, and other barriers such as a lack of secondary markets
and taxation barriers. In particular, differences in market condition and legal status lead to
difficulties to assess risks across borders.
8
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Regions,
Unleashing the potential of Crowdfunding in the
European Union,
COM(2014) 172 final, 27.3.2014.
All
responses
that
were
authorised
for
publication
can
http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm.
be
viewed
at:
9
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A number of respondents called for some form of intervention at EU level, ranging from light
touch intervention to calibrating existing requirements, to introducing a fully harmonised
regime. Some respondents argued that "soft" measures, such as coordination or sharing of best
practice, were the best way forward. Those calling for EU legislative intervention most often
referred to the need to ensure investor protection. Some respondents also considered that EU
intervention would facilitate cross-border transactions at lower costs. Other respondents
clearly stated that no action was necessary at EU level, and that it would be better to follow a
market-led approach.
In light of this feedback, the CMU Action Plan commits the Commission Services to take
stock of the situation of European crowdfunding markets and of the regulatory landscape as a
basis for a future decision on how to best enable this funding channel to serve the European
economy while appropriately address any potential risks.
2.2.
Workshops, studies, and awareness-raising initiatives
Two regulatory workshops with Member States were held in December 2014 and in February
2016, in the framework of the Expert Group of the European Securities Committee
(EGESC).
10
At the first workshop, Member State experts reported varying degrees of cross-border
transactions, mainly on the basis of anecdotal evidence. Experts also pointed to a number of
issues that could be addressed in order to avoid legal barriers and promote crowdfunding
activity in the EU, such as information sharing, data gathering, establishing a common
taxonomy, supporting passporting, applying a principles based regime, and more convergent
information disclosure requirements for securities issues below the prospectus threshold.
The second workshop showed that several Member States have introduced or are planning to
introduce bespoke national regimes on crowdfunding. All these regimes aim at enabling the
development of crowdfunding as an alternative source of funding while addressing key risks
to investors. However, there are some divergences in the approaches that Member States have
taken to reach those objectives. For example, some Member States consider that platforms
must be authorised under their bespoke regimes to operate as crowdfunding platforms
irrespective of the fact that they may have a MiFID passport; other Member States consider
that a MiFID-authorised investment firm should be allowed to carry out crowdfunding
activities in other Member States through its passport on the basis of the principle of mutual
recognition.
11
The Commission has also set up a European Crowdfunding Stakeholder Forum (ECSF) as the
expert group of representatives of associations of concerned stakeholder groups and national
authorities. The objective of this group is to contribute to raising awareness, providing
information and training modules for project owners, promoting transparency and exchange
of best practice, and identifying issues that may need to be addressed in order for
10
Minutes of both meetings (held on 18 December 2014 and 10 February 2016, respectively) are available at:
http://ec.europa.eu/finance/securities/egesc/index_en.htm.
See section 4.1.1 on the authorisation of investment-based crowdfunding platforms and section 4.2.1 on the
authorisation of lending-based crowdfunding platforms.
11
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crowdfunding to flourish while taking into account the interest of contributors. Four meetings
of the ECSF have been held since its creation, of which the most recent was on 17 February.
12
Most experts agreed that it would be useful to: (i) clarify the applicability of existing EU law,
especially in regard to cross-border activities; (ii) encourage self-regulation at national and
EU level; and (iii) create a voluntary transparency label.
The Commission launched projects or commissioned a number of studies to improve the
general knowledge of developments in crowdfunding markets, business models and
regulatory frameworks:
A study (prepared by Crowdsurfer and Ernst and Young) mapping crowdfunding markets
in the EU (both platforms and projects) in the period 2013-14 and analysing selected
national legislative interventions on crowdfunding, including market trends before and
after those interventions (published in November 2015)
13
.
In April 2016 the Financial Services Users Group (FSUG) published a study (prepared by
Oxera) assessing (i) the level of awareness among the general population of potential (and
actual) users of crowdfunding as a form of seeking a financial return; and (ii) among those
who are aware of crowdfunding, the level of awareness of the associated risks
14
.
A study on " Assessing the potential for crowdfunding and other forms of alternative
finance to support research and innovation", which is expected to deliver a more
comprehensive picture of the potential for crowdfunding investors to improve access to
risk finance in the EU for, in particular, SMEs and small mid-caps. The study is also
expected to produce recommendations for action at EU, national and regional levels.
A project that aims at identifying, analysing and publicising best practice in Europe's
crowdfunding market in relation to the cultural and creative sectors. One of the outputs of
the project will be an action plan with recommendations at European level, including
regulatory aspects.
In order to increase the awareness of small and medium-sized enterprises on the potential of
crowdfunding as an alternative source of finance, the Commission published a Guide on
Crowdfunding for SMEs in 23 languages.
15
The guide explains what crowdfunding is and
how to use it. It offers information on different types of crowdfunding and gives practical tips
on how to access it. The guide will be updated in 2016. Further communication initiatives will
12
Agendas, minutes and meeting documents are available at:
http://ec.europa.eu/finance/general-
policy/crowdfunding/index_en.htm#maincontentSec6.
"Crowdfunding: Mapping EU markets and events study". Available at:
http://ec.europa.eu/finance/general-
policy/crowdfunding/index_en.htm#maincontentSec1.
"Crowdfunding from an investor perspective". Available at: http://ec.europa.eu/finance/general-
policy/docs/crowdfunding/160428-crowdfunding-study_en.pdfhttp://ec.europa.eu/finance/general-
policy/docs/crowdfunding/160428-crowdfunding-study_en.pdf.
Available
on
the
Europa
policies/crowdfunding/index_en.htm.
website:
http://ec.europa.eu/growth/access-to-finance/funding-
13
14
15
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raise awareness on crowdfunding among SMEs, mainly through a media campaign, a
workshop and the Enterprise Europe Network.
2.3.
Work by the European Supervisory Authorities
The European Supervisory Authorities (ESAs) have also carried out work on crowdfunding in
their respective areas of responsibility. Most notably, in December 2014 the European
Securities Markets Authorities (ESMA) published advice and an opinion on investment-based
crowdfunding, and in February 2015 the European Banking Authority (EBA) published its
opinion on lending-based crowdfunding.
16
3.
3.1.
C
URRENT STATUS OF CROWDFUNDING IN THE
EU
Crowdfunding business models
Crowdfunding refers to an open call to the public to raise funds for a specific project.
Crowdfunding platforms are websites that enable interaction between fundraisers and the
crowd. Financial pledges can be made and collected through the platform.
The different business models that are used by crowdfunding platforms can be grouped under
the following broad categories (see Annex 1 for more details about the different business
models):
Investment-based crowdfunding: Companies issue equity or debt instruments to crowd-
investors through a platform.
Lending-based crowdfunding (also known as crowdlending, peer-to-peer or marketplace
lending): Companies or individuals seek to obtain funds from the public through platforms
in the form of a loan agreement.
Invoice trading crowdfunding: a form of asset-based financing whereby businesses sell
unpaid invoices or receivables, individually or in a bundle, to a pool of investors through
an online platform.
Reward-based crowdfunding: Individuals donate to a project or business with expectations
of receiving in return a non-financial reward, such as goods or services, at a later stage in
exchange of their contribution.
Donation-based crowdfunding: Individuals donate amounts to meet the larger funding aim
of a specific charitable project while receiving no financial or material return.
16
ESMA's Opinion and Advice are available at:
https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1378_opinion_on_investment-
based_crowdfunding.pdf
and
https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-
1560_advice_on_investment-based_crowdfunding.pdf,
respectively; EBA's Opinion is available at
https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-
03+(EBA+Opinion+on+lending+based+Crowdfunding).pdf.
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Hybrid models of crowdfunding: those that combine elements of the other types of
crowdfunding.
This staff working document mainly addresses crowdfunding models that entail a financial
return, notably investment-based crowdfunding and lending-based crowdfunding. However,
this is not to deny the important role that donations or rewards may play for innovators and
early-stage entrepreneurs, especially in certain areas such as research, science, and cultural
and creative sectors. For example, they may be useful to support a single project where the
fund-seeker needs to finalise the prototype of a product or service. A fund-seeker may also
use a reward-based crowdfunding campaign as a pre-sale to test her or his product or
service.
17
3.2.
Current status of the EU crowdfunding market
Crowdfunding has been developing rapidly in some Member States. It is estimated that EUR
4.2 billion were successfully raised through crowdfunding platforms in 2015 across the EU, of
which EUR 4.1 billion were raised through crowdfunding models entailing a financial
return.
18
Table 1 shows details of total and average amounts pledged, number of campaigns,
and number of platforms for each type of crowdfunding.
The study commissioned by the Commission analysed data from crowdfunding platforms
across the EU. Data coverage was approximately 68% by EUR volume of the estimated total
market size for the time period under consideration (2013-14).
19
Data covered loans, equity,
rewards, donations and other crowdfunding models. However, the coverage of the study
varies considerably between Member States, due to the number of active platforms, and the
accessibility and suitability of data.
The study identified 510 live platforms as active in the EU as at 31 December 2014. Of these,
502 platforms were located in 22 Member States, while 8 platforms were located in other
countries (Australia, Canada, China, New Zealand and the United States). Most platforms
were located in the United Kingdom (143), followed by France (77) and Germany (65). The
majority of platforms were involved in reward-based crowdfunding (30%), followed by
platforms involved in equity crowdfunding (23%) and loan-based crowdfunding (21%).
20
17
Gabison (2015),
Crowdfunding and its Regulation: How can Crowdfunding help ICT Innovation?,
Luxembourg: Publications Office of the European Union.
Data from the Crowdsurfer Dashboard (www.crowdsurfer.com). Crowdfunding models entailing a financial
return include equity, loans, bonds and debentures, invoice trading, revenue sharing, community shares, and
micro-loans. Coverage is estimated to exceed 68% of the market in 2015.
Coverage of both loans crowdfunding and equity crowdfunding was estimated at 81%.
The study covered only two projects (EUR 4,276 in total) that involved fundraising through the emission of
bonds, and they were classified as "Other".
18
19
20
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Table 1: Crowdfunding in the EU in 2015
Total raised
(EUR)
Equity
Bonds and
debentures
Loans, of
which:
Secured
business loans
Unsecured
business loans
Secured
individual loans
Unsecured
individual loans
Revenue-
sharing
Invoice trading
Community
shares
Microloans
422,039,462
Average raised
(EUR)
504,832
Number of
campaigns
836
Number of
platforms
60
103,368,785
1,590,289
65
8
3,209,368,439
15,688
204,575
77
453,423,956
79,132
5,730
6
728,839,337
58,154
12,533
16
63,497,821
35,834
1,772
3
1,266,723,276
7,082
178,854
14
69
348,547,943
69
59,898
1
5,819
1
1
7,183,406
5,186,566
478,894
739
15
7,014
2
5
Rewards
Donations and
microdonations
96,899,235
4,573
21,538
127
25,264,527
2,938
8,634
63
Source:
Crowdsurfer Dashboard (www.crowdsurfer.com)
Note:
Some loans are not classified by the platform as to their secured/unsecured status. To avoid potentially
inaccurate assumptions, they are left unclassified, hence the breakdown is less than the sum of the total.
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Project data from the platforms covered by study showed a total of EUR 2.3 billion
successfully raised in 2013-14.
21
The largest single projects raised EUR 6.1 million (equity)
and EUR 5.0 million (loan). Across the EU between 2013 and 2014, amounts raised through
equity crowdfunding platforms grew by 167%, and amounts raised through loan
crowdfunding platforms grew by 112%.
In 2014 the average amount raised was EUR 260,000 for equity crowdfunding and EUR
11,000 for lending-based crowdfunding. The average size of offers seems to be increasing.
For example, the average amount raised through equity platforms grew by 21% (from EUR
215,000 to EUR 260,000). This trend is confirmed by the 2015 UK Alternative Finance
Report, which shows that the average deal size in the United Kingdom stood at GBP 523,978,
a considerable increase from the 2014 average of GBP 199,095.
Crowdfunding is an EU-wide phenomenon, as crowdfunding projects were identified in every
Member State in 2013-14. However, there are significant differences in levels of activity
between Member States. For equity crowdfunding projects located in the EU covered by the
study, in 2013-14 the United Kingdom was the largest market by total amount raised (EUR 89
million), followed by France (EUR 19 million) and Germany (EUR 18 million). For loans
crowdfunding projects covered by the study, in 2013-14 the United Kingdom was by far the
largest market with EUR 1.6 billion, followed at a distance by Estonia (EUR 17 million) and
France (EUR 12 million).
22
By defining cross-border activity as crowdfunding where the project country differs from the
platform’s most active country, the study identified almost EUR 180 million of cross-border
funding for successful projects by participating platforms in the scope period (compared to a
total of EUR 2.3 billion for all successful projects, i.e. 8% of the total). Most cross-border
activity was on non-EU platforms operating within the EU, and EU platforms operating
outside the EU. Cross-border activity within the EU amounted to EUR 16.9 million of
projects by participating platforms in 2013-14.
However, it is likely that these amounts understate the true level of cross-border activity, as
they only account for situations where both the platform and the project are located in two
different Member States (thus excluding situations where the provider of funds and the
platform are located in two different Member States).
Recent evidence for the United Kingdom shows that there is little to no funding raised
through alternative finance platforms going to individuals, projects or businesses based
outside the UK. However, more than half of the surveyed platforms reported a certain degree
of funding that came from overseas, with around 17% registering medium (approximately
25%) to high levels (55%) of funding (as % of total funding volume) from foreign countries.
For peer-to-peer business lending platforms, there has been little or no cross-border activity
21
Given the market coverage of the study, it can be estimated that a total of approximately EUR 3.4 billion
was raised through crowdfunding across the European Union during 2013 and 2014 taken together, and
EUR 2.2 billion was raised through equity and loans crowdfunding.
Caution should be used when comparing figures across countries, as coverage varies considerably between
Member States. This is due to: the number of active platforms; the accessibility of data; the suitability of
data.
22
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reported. Whereas, for equity-based crowdfunding, the weighted funding from overseas and
the funding going to individuals, projects or business abroad was reported at 12% and 5%,
respectively.
23
In fact, at the present time, gathering reliable data on and making robust estimation of cross-
border transactions is very challenging, and the results depend to a large extent on the
methodologies being used.
24
Regarding global trends, the most recent estimates show that crowdfunding expanded by
167% in 2014 and reached USD 16.2 billion from USD 6.1 billion in 2013. North America
continued to be the first region in terms of crowdfunding volumes, growing by 145% and
raising a total of USD 9.46 billion. Asian crowdfunding volumes grew by 320%, to USD 3.4
billion raised, ahead of Europe (estimated at USD 3.26 billion).
25
3.3.
Emerging trends in crowdfunding
Since crowdfunding is a relatively new funding instrument, a great deal of innovation is going
on in the sector. Although it is impossible to forecast how such a fast-changing phenomenon
will evolve in the future, expert views
26
give an idea of emerging trends and innovative
business models.
Crowdfunding can be seen as one part of the broader universe of financial technology
innovations. FinTech is increasingly coming into the focus of regulatory attention.
27
However,
financial technology innovations can be found across different segments of financial markets
(e.g. payment systems, post-trading infrastructures, and investment advice, to name but a
few), and the implications of FinTech for investor protection and financial stability are likely
to be very different depending on the type of products and funding channels. For example, the
2014 Opinion and Advice on investment-based crowdfunding of the European Securities
Markets Authority did not identify significant potential risks to financial stability arising from
crowdfunding, given the small scale of the market and its nature. Likewise, the 2015 Opinion
on lending-based crowdfunding of the European Banking authority identified risks to
borrowers, to lenders and to platforms, rather than to the financial system as a whole.
23
2015 UK Alternative Finance Industry Report.
The difficulty in collecting transparent, comparable and reliable data may also be partly due to regulatory
differences across EU Member State.
Massolution, 2015CF – Crowdfunding Industry Report, March 2015.
Including exchanges of views at ECSF meetings. Also, a study prepared for the European Commission gave
an overview of emerging ongoing and future trends on the crowdfunding market and business models
(Crowdfunding
innovative ventures in Europe: The financial ecosystem and regulatory landscape,
Study
prepared for the European Commission by SpaceTec Capital Partners, 2014).
For example, the Financial Stability Board is evaluating the potential financial stability implications of
emerging financial technology innovation for the financial system as a whole, and working to understand
better the potential impacts on financial stability of operational disruption to core financial institutions or
infrastructure.
24
25
26
27
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A growing trend that is expected to become more prominent in the future is the
institutionalisation of crowdfunding, notably in terms of the investors. This trend is supported
by a recent study which found that 45% of platforms in the United Kingdom reported
institutional involvement, compared to 28% in 2014 and just 11% in 2013.
28
Institutional
involvement is particularly strong in consumer loans crowdfunding, while in equity-based
crowdfunding a growing number of venture capital and angel investors are co-investing
alongside or in parallel with ‘crowd investors'. The 'institutional investor' category is quite
broad and includes banks, mutual funds, hedge funds, pension funds, asset management
companies, but also local authorities and national development banks.
29
Another observed trend is the consolidation of crowdfunding platforms. In total, 510 live
platforms were identified as active in the EU on 31 December 2014.
30
The total number of
platforms at that date rose by 23.2% compared with its level in 2013, with growth in
identified platforms slowing from a peak of 74.3% in 2010.
31
The total number of new
platform launches fell from 133 in 2013 to 96 in 2014. The trend is confirmed by the 2015
UK Alternative Finance Industry Report which shows that since previous years’ studies, a
number of alternative finance platforms have either ‘gone quiet’ or disappeared altogether. In
the United Kingdom, the absolute year-on-year growth rate is slowing down, from 161%
between 2013-14 to 84% between 2014 and 2015.
This consolidation is also happening across borders, where first experiences with public
listing for crowdfunding platforms are being observed. In this context, stock market
fluctuations may have an impact on some listed crowdfunding platforms as well as on the
attractiveness of crowdfunding vis-à-vis public listings.
Although there are examples of fund seekers using a platform for more than one round of
capital-raising, it will be challenging for existing platforms to maintain a sufficient pipeline of
projects which would enable them to grow at current rates. A recent study shows that of the
367 businesses that attracted investment via the United Kingdom’s five major crowdfunding
platforms during 2011-13, only 22% have gone on to raise funds at a higher valuation, or
realised a return for their investors, through a sale or other exit.
32
28
Cambridge Centre for Alternative Finance and NESTA,
Pushing Boundaries: the 2015 UK Alternative
Finance Industry Report,
February 2016.
For example, in December 2015 the European Investment Bank approved a pilot project to provide
financing to SMEs in the United Kingdom via an online peer-to-peer lending platform (approximately GBP
100 million). Source:
http://www.eib.org/projects/pipeline/2014/20140307.htm.
Crowdfunding: Mapping EU markets and events study.
Growth of live platforms in the EU has been on a declining trend from the 2010 peak: 54.1% in 2011; 49.5%
in 2012; 47.3% in 2013; and 23.2% in 2015.
Alfi Data and Nabarro,
Where are they now? A report into the status of companies that have raised finance
using Equity Crowdfunding in the UK,
November 2015. This report surveys the companies that have raise
equity finance on the most significant online platforms based on origination volume since the industry began
in 2011: Crowdcube, Seedrs, SyndicateRoom, Venture Founders, CrowdBnk. This report has tracked every
campaign funded through the above platforms since the industry’s inception in 2011 until June 30th 2015.
The status of each campaign was reviewed as at 30th September 2015. That amounts to 431 equity
crowdfunding rounds by 367 companies.
13
29
30
31
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More specifically in the P2P lending space, a small number of consumer lending platforms
already have a large share of the market, while there is more room for consolidation on the
business lending segment. This consolidation is also happening across borders.
Indeed, the internationalisation of crowdfunding platforms is another emerging trend, which is
driven by the need to increase economies of scale and thus expand both the investor base and
the pipeline of projects seeking funding. Cross-border crowdfunding activities are more likely
to take place where the platform or project are based in smaller Member States, whose
markets may not be large enough to ensure the sustainability of platforms' activities. The
extent of cross-border activities is analysed in more detail in section 5 of this document.
In terms of new market segments in the securities-based crowdfunding space, campaigns
focus more on traditional sectors beyond investments in technology start-ups and seeks to
facilitate disintermediation in existing sectors (such as real estate). The Crowdsurfer /
Ernst&Young study found that few participating platforms operated with multiple funding
types, but there is trend of increasing activity in more "niche" segments such as renewable
energy, student loans, and real estate.
Another trend is the emergence of organised secondary markets for securities or loans in
crowdfunding projects, although this service is not provided systematically. There are some
examples of different models and forms to provide such secondary marketplaces.
One model entails the direct involvement of the crowdfunding platform. For instance, a
platform may provide an online bulletin board connecting investors who intend to sell their
investments with potential buyers who are looking to invest in previously funded projects.
Investors can offer or bid on securities and negotiate a price directly; once the sale is agreed,
the security is transferred from investor account to another. In another example, a
crowdfunding platform itself may operate a marketplace for its securities (although such
marketplace may be extended to other unlisted securities and not limited those financed
through the crowdfunding platform). In some cases these venues are multilateral trading
facilities (MTFs). Unlike a bulletin board connecting sellers and buyers, this type of
secondary market would bring together multiple buying and selling interests, in a system with
non-discretionary rules, in a way that resulted in a contract.
In another model, crowdfunding platforms may team up with existing marketplaces for
unlisted companies and thus enable investors to buy and sell securities that had been offered
through crowdfunding platforms.
Another important trend to be observed concerns the awareness of the opportunities and risks
of crowdfunding among potential investors. The Oxera study sheds some light on the level of
awareness of crowdfunding in three countries (Germany, Spain and Poland).
33
A greater
33
Awareness levels are highest in Germany (21.5%), followed by Spain (17.4%) and then Poland (16.6%).
The difference between the latter two is not statistically significant. Awareness rates among males are higher
than among females. With the exception of Poland where the age group with the highest awareness is the
34–44-year olds, there is a tendency for the youngest age groups (the 18–34-year olds) to have higher
awareness rates. In all three countries the awareness rate of the 18–34-year olds exceeds that of the age
group 45+ by a statistically significant level. Finally, education and income are broadly positively correlated
with awareness levels for all countries considered. In some instances there are no statistically significant
differences.
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number of respondents report that they have invested in equity crowdfunding than in P2P
lending, and around 60% of the respondents who report that they have invested state that they
have invested less than 10% of their savings in equity crowdfunding or in P2P lending.
Being interested or excited about a specific company or project is the most important reason
to invest for equity crowdfunding. Respondents who consider ‘taking advantage of a new
form of investment/increased diversification’ to be important tend to consider ‘higher
expected financial returns’ and ‘disappointment/mistrust of traditional finance’ to be
important as well. For P2P lending, no single motivation for investing appears to be more
important than any other.
Concerns about the reliability of this form of investment, as well as the lack of regulation of
platforms, are rated as the most important reasons not to invest for both forms of
crowdfunding. Respondents seem mostly concerned that the fundraiser/borrower might be
fraudulent. For both equity crowdfunding and P2P lending, the second most highly rated
source of concern is that the platform might be fraudulent.
Preliminary results
34
of a survey on crowdfunding from the user's perspective conducted by
the University of Brighton show that that investors in P2P lending care more about returns
while interest and excitement is a more important drive of investment through equity
crowdfunding. Poor returns or losses are the most important risk factors. Overall, platforms
seem to have gained investors’ trust, and this implies that it will be very important for
platforms to maintain a good reputation vis-à-vis their actual and potential users
The preliminary results of the survey also show that it is too early for a large majority of
investors in P2P lending to return on past returns mainly. Some investors in equity
crowdfunding have already started receiving dividends or similar returns; many investors in
equity crowdfunding have not received returns yet but are conscious that it will take time. In
terms of future returns, investors in P2P lending expect around 4% to 6%, while investors in
equity crowdfunding expect around 1% to 15% (although 1 in 5 is afraid of losing money).
A second round of the survey (with an expanded questionnaire) has just been launched. The
questionnaire refers to potential respondents that are already aware of crowdfunding with
financial returns (equity crowdfunding and P2P lending), even if they have not invested yet
35
.
3.4.
Potential risks related to crowdfunding
As highlighted in the introduction, crowdfunding, while currently relatively small, has the
potential to bring significant benefits to the EU economy in terms of jobs and growth,
34
One important caveat is that the results of the survey are not yet robust, given the limited number of
respondents and the fact that the results may be biased (especially in p2p lending where more than half of
responses come from the United Kingdom).
The Commission Services would be grateful for any additional responses to the survey, which only takes 15
minutes to answer. All the information provided stays anonymous. It is possible to respond to the survey
here:
https://ec.europa.eu/eusurvey/runner/EQUITYcrowdfundingCONSUMERsurvey2016
(equity
crowdfunding questionnaire) and
https://ec.europa.eu/eusurvey/runner/LENDINGcrowdfundingCONSUMERsurvey2016
(lending
crowdfunding questionnaire).
35
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especially by providing an alternative funding source for start-ups, SMEs and unlisted
companies. At the same time, as with any type of investment, the promotion of these benefits
needs to be pursued in parallel with ensuring appropriate safeguards.
The risks that may be posed by investment-based crowdfunding are common to those more
generally related to investing in the types of securities that are offered (e.g. unlisted shares or
bonds), or to those that may arise through other financial intermediation channels. These
risks
36
can also manifest themselves in the context of the crowdfunding business model (i.e.
securities offered to investors, often non-professional ones, through an online intermediary).
These risks may include: investors losing part or all of their capital or not getting the returns
they expect; dilution in the case of equity crowdfunding (if the company engages in further
rounds of capital raising); inability to exit investments (e.g. for lack of a secondary market);
insufficient information or inability to price correctly the securities invested in, or
misinformation (both in the pre-investment phase and over the lifetime of the investment);
conflict and misalignment of interests between issuers, platforms and investors
37
; insolvency
of the platform operators, in particular as regards the continuous servicing of existing claims
(e.g. dividend and interest payments) and protection of clients' assets; security of client data;
platforms may be used for illicit activities; fraud (both for the investors and for the project)
and related reputational risk for platforms.
Lending-based crowdfunding may also give rise to some of the risks listed above: investors
may not have sufficient information or may be misinformed; insolvency of the platform
operators; conflict and misalignment of interests; security of client data; platforms are used
for illicit activities; fraud and related reputational risk.
Other risks may be specific to lending, and manifest themselves in the context of the
crowdfunding business model (i.e. money handling and credit intermediation through an
online platform).
38
A non-exhaustive list of risks includes the following: credit risk for the
lender (e.g. lender may lose the capital invested and the related interest); lenders may not be
able to exit their investment in the absence of a secondary market for loans; borrowers may
not have sufficient information to assess their ability to repay the loan, or borrowers may be
misinformed.
36
The study from Nabarro and AltFi Data shows that 20% of the 367 UK businesses that attracted investment
through five major equity crowdfunding platforms between 2011 and 2013 were no longer trading as of
November 2015. At the same time, the study shows that investments through crowdfunding platforms do not
seem to underperform other benchmark investments. In the United Kingdom, a 2014 study by the insurer
RSA suggested that 55% of SMEs fail in their first five years of existence. Furthermore, a 2009 Nesta report
suggested that 56% of angel investments failed to return capital.
For example, a misalignment of interest may arise due to the remuneration model of many crowdfunding
platforms, which are based upon the completion of successful crowdfunding campaigns and are completely
independent from the outcome of the funded project. A potential misalignment of interest may also emerge
on the side of issuers if the company seeking funding is free to choose the method to evaluate the investment
prospects that will be communicated to potential investors.
For example, a recent case of non-segregation of clients' money led to the failure of a marketplace lending
platform.
37
38
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4.
T
HE REGULATORY ENVIRONMENT FOR CROWDFUNDING ACTIVITIES
As a basis for enabling crowdfunding to develop, while ensuring that risks are appropriately
mitigated and investors are sufficiently protected, seven EU Member States have introduced
bespoke regulatory frameworks for crowdfunding activities, with requirements for
issuers/borrowers, platforms and investors/lenders. In addition, a number of Member States
are either preparing or planning to introduce a bespoke regime. Overall, these domestic
regimes are consistent in their approach, as they aim at enabling the development of this
source of funding while addressing key risks that may arise, notably for investors.
In general, business models such as peer-to-peer or business-to-consumer involve the
application of national rules implementing several EU consumer protection directives notably
the Unfair Commercial Practices Directive and the Unfair Contract Terms Directive.
39
They
bring in several important consumer protection standards that benefit both retail investors and
borrowers in the area of crowdfunding. In addition, bespoke regulatory frameworks go
beyond minimum harmonisation obligations in financial services provided by EU consumer
law.
In crowdfunding there is likely to be significant processing of personal data. The rules of the
Data Protection Directive
40
will apply to platforms and issuers/borrowers where personal data
are processed. For example, data controllers should ensure that all data protection obligations
are met, including right of access of data subjects (individuals) to their personal data. In
addition, the Data Protection Directive has liability and compensation provisions for unlawful
processing of or incompatible acts relating to the processing of personal data, which are
separate from the other liability regimes. Crowdfunding platforms need to ensure the
awareness of and compliance with the obligations for data controllers and data processors and
the rights of data subjects (individuals).
41
In addition to regulatory frameworks put in place by governments, several industry
associations have introduced systems of self-regulation, notably codes of conduct which may
set minimum requirements and best practices for platforms in terms of transparency and good
business conduct, among other aspects. The potential for a transparency label for platforms
was also discussed by experts in the ECSF.
For example, the European Crowdfunding Network (ECN) has published some guiding
principles as its Code of Conduct for observation and application by its members and the
39
Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair
business-to-consumer commercial practices in the internal market and amending Council Directive
84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council
and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial
Practices Directive’) and Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer
contracts.
Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of
individuals with regard to the processing of personal data and on the free movement of such data
The Data Protection Directive will be replaced by the General Data Protection Regulation (applicable across
the EU in May 2018) which modernises the data protection rules, and provides tools, such as data protection
by design, to assist data controllers to comply with the data protection rules.
40
41
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European crowdfunding industry at large. These guiding principles are: act with integrity and
in fairness; keep your promises; disclose conflicts of interest; foster data transparency;
maintain confidentiality; do not harm the industry, society or environment; use, at all times,
adequate and appropriate human and technical resources that are necessary for the proper
management of a crowdfunding platform. The Code of Conduct also sets out specific
compliance procedure, such standardised information sheets and reporting requirements.
42
The United Kingdom is currently the most developed market for peer-to-peer lending, with a
trade association (UK peer-to-peer finance association) representing 90% of the lending
market in the United Kingdom. Its members must apply so called Operating principles setting
out the standards of business conduct, such as clarity and transparency, including on bad debt
rates, returns performance and full loanbook availability, risk management and reporting.
These align with, and in some areas supplement, requirements of the Financial Conduct
Authority.
43
The following sections describe the main characteristics of domestic regulatory and
supervisory arrangements that are in place to promote crowdfunding as an alternative source
of finance while addressing the risks. Annex 2 includes an overview of domestic regulatory
frameworks on investment-based crowdfunding and lending-based crowdfunding in a
selection of Member States.
44
4.1.
Regulation of investment-based crowdfunding
4.1.1. Getting authorised
There are four broad models of authorisation of crowdfunding platforms in EU Member
States, as explained in greater detail in the overview of national regulatory regimes on
investment-based crowdfunding in Annex 2 (especially the rows on authorisation, services
provided, financial instruments, and passport). Some of these authorisation models are not
mutually exclusive and in practice they are combined in certain Member States. For example,
in one Member State platforms can be authorised either under model (1) or model (2) at the
firm's discretion. In another Member State, platforms can be authorised both under model (1)
and model (3).
(1)
Authorisation under the Markets in Financial Instruments Directive (MiFID)
45
42
The European Crowdfunding Network is a Brussels-based professional network promoting adequate
transparency, (self) regulation and governance. The Code of Conduct is available at:
http://eurocrowd.org/about-us/code-of-conduct-2/.
http://p2pfa.info/wp-content/uploads/2015/09/Operating-Principals-vfinal.pdf
This is the Commission Services' understanding of the national legal framework based on the information in
their possession.
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in
financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of
the European Parliament and of the Council and repealing Council Directive 93/22/EEC (MiFID).
43
44
45
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Investment-based crowdfunding platforms generally have to be authorised under
MiFID, and therefore benefit from a passport to carry out regulated services and
activities throughout the EU. This is the case where crowdfunding platforms provide
investment services (as listed in Annex 1 Section A of MiFID) in relation to financial
instruments listed in Annex 1 Section C of the same directive, in particular
transferable securities
46
(such as shares and bonds) or units of collective investment
undertakings.
47
(2)
Domestic bespoke regime under MiFID Article 3 exemption
In two Member States, platforms can be authorised under a domestic bespoke regime
developed under the exemption in Article 3 of MiFID.
48
In these cases, authorised
platforms can carry on crowdfunding-related services and activities at national level
also in relation to MiFID financial instruments. However, these platforms are not
allowed to passport their activities across the EU, unless they seek a full MiFID
authorisation (in such a case, they would not be authorised under the national bespoke
regime). In one Member State, platforms regulated under the Article 3 exemption are
authorised to provide the MiFID service of "reception and transmission of orders"
(RTO), in which case platforms can only transmit orders to authorised entities. In
another Member State, platforms are required to provide the "investment advice"
service.
(3)
Authorisation for services and activities in relation to non-MiFID financial
instruments
Some Member States' domestic regimes focus on regulating the services and activities
of crowdfunding platforms which intermediate instruments that do not qualify as
financial instruments under MiFID (for example, 'non-readily realisable securities').
When platforms do not provide services in relation to transferable securities or other
MiFID financial instruments, they need not be authorised under the directive for that
intermediation.
49
However, platforms can be authorised under the relevant bespoke
46
Transferable securities are defined in MiFID as 'classes of securities which are negotiable on the capital
market, with the exception of instruments of payment'.
In its final report
Investment-based crowdfunding- Insights from regulators in the EU
(13 May 2015,
ESMA/2015/856 Ann1) ESMA notes that some crowdfunding platforms operate as MiFID tied agents of an
investment firms, and therefore are not directly authorised but operate under the responsibility of an
authorised firm.
Under Article 3 of MiFID, Member States may choose not to apply the Directive to any persons for which
they are the home Member State that: are not allowed to hold clients' funds or securities; are not allowed to
provide any investment service except the reception and transmission of orders and the provision of
investment advice; in the course of providing that service, are allowed to transmit orders only to authorised
entities; and provided that the activities of those persons are regulated at national level.
For example, company laws in certain Member States may consider that stakes in private firms are not
transferable, and therefore would not fall within the scope of MiFID as transferable securities. In these
cases, when there is no domestic bespoke regime, crowdfunding platforms may either fall outside the scope
of regulation or be subject to other domestic rules (e.g. trade intermediation or promotion of financial
services).
47
48
49
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regime to intermediate non-MiFID instruments at national level, while seeking a
MiFID authorisation to carry on services and activities in relation to transferable
securities and other MiFID financial instruments.
(4)
Authorisation outside the MiFID framework
Other Member States have developed their domestic bespoke regime outside the
MiFID framework because they consider that investors may have access to MiFID
financial instruments through platforms which are not in the scope of MiFID because
such platforms do not carry out any MiFID service or activity.
4.1.2. Conduct of business, conflict of interest and organisational rules
Depending on the type of authorisation, different capital requirements, conduct of business
rules, conflict of interest rules and organisation requirements apply:
Minimum capital requirements on platforms
Under MiFID, the initial capital requirements are €730,000
50
or, if firm receives and
transmits orders and/or executes orders and/or manages portfolio and holds client money
but does not deal on its own account, €125,000.
51
Member States may lower the initial
capital requirement of €125,000 mentioned above to €50,000 if the firm is not authorised
to hold client money.
52
One of the purposes of regulatory capital requirements in MiFID is
to protect the customers of investment firms from the risk of insolvency of the firm and to
ensure operational continuity.
53
As shown in the row on "minimum capital requirements" in the overview table of
investment-based crowdfunding regimes in Annex 2, some Member States made specific
revisions of capital requirements for investment-based crowdfunding activities in their
bespoke regimes. Generally speaking, the rationale is that platforms should comply with
proportionate capital requirements or similar mechanisms for safeguarding operational
continuity. Typically the levels of the capital requirements are calibrated to the services
provided by the platforms and the activities they carry on. In some cases there are no
capital requirements or capital requirements start at relatively low levels and they may
also be replaced by qualified indemnity insurance. In one Member State, the capital
requirements increase proportionally with the financing sum.
50
Article 28(2) of Directive 2013/36/EU.
Article 29(1) of Directive 2013/36/EU.
Article 29(3) of Directive 2013/36/EU.
In addition, MiFID sets out a number of requirements in relation to safeguarding client assets, including
requirements to make organisational arrangements ensuring that client assets can be distinguished from
those of the platform in case of insolvency. The European Parliament and Council Directive 97/9/EC of 3
March 1997 on investor-compensation schemes also applies to MiFID-authorised crowdfunding platforms in
relation to MiFID financial instruments. This Directive provides access to compensation up to a specified
amount for investors where the investment firm is no longer financially able to meet its obligations.
51
52
53
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Conflict of interest rules on platforms
MiFID authorised platforms must maintain and operate effective organisational and
administrative arrangements with a view to taking all reasonable steps designed to prevent
conflicts of interest from adversely affecting the interests of its clients.
Alternatively, for platforms not authorised under MiFID, some domestic bespoke regimes
also directly address the issue of conflicts of interest (for additional details, see the row on
conflict of interest in the table on investment-based crowdfunding in Annex 2). These
range from requirements on platforms to identify and manage sources of potential
conflicts of interest and disclose conflict-of-interest management policy to users, to
limitations or outright prohibitions on the extent to which platforms can act as issuers or
investors. Some Member States extend the conflict of interest rules to directors or
employees of platforms.
Conduct of business requirements and organisational rules on platforms
Where platforms operate within the scope of MiFID, a range of organisational and
conduct of business requirements applies (for example to ensure that client assets are
protected and that platforms act in the interests of the clients).
Where platforms operate outside the scope of MiFID, targeted proportionate rules on
platform’s organisational arrangements and conduct of business are a common feature of
several domestic bespoke regimes (see the row on professional requirements in the table
on investment-based crowdfunding in Annex 2). For example, platforms managers may be
required to show good repute, professionalism and competence. They need to be able to
ensure that investors understand the features and risks of the investments.
Moreover, the Unfair Commercial Practices Directive provides general obligations for the
conduct of business and requires traders to act in accordance with the requirements of
professional diligence in relations with consumers.
54
4.1.3. Investor protection measures
In addition, both EU rules and bespoke regimes set out investor protection measures such as:
"know your customer rules"; disclosure by issuers (in cases of exemption from the Prospectus
Directive
55
); information requirements and risk warnings by platforms; due diligence
requirements; limits on maximum investable amounts.
"Know your customer" rules:
Platforms operating within the scope of MiFID may be required to carry out a suitability
test or an appropriateness test, depending on the services they provide in relation to
financial instruments.
54
Article 5, Directive 2005/29/EC.
Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted
to trading.
55
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Some domestic bespoke regimes have rules to ensure that investment offerings through
crowdfunding platforms reach investors for whom they are suitable or appropriate (more
details can be found in the row on know-your-customer rules in the table on investment-
based crowdfunding in Annex 2). In one Member State, platforms must ensure that
investments are in line with the investor's experience, financial situation and risk appetite.
In another Member State, platforms must ensure that investors have examined investor
education information provided by the regulator; responded positively to a questionnaire
on investment features and risks; and are able to economically sustain the complete loss of
the investment.
In addition, platforms that operate under MiFID are automatically subject to anti-money
laundering and terrorist financing rules under the Anti-Money Laundering Directive
(AMLD)
56
. Even when they operate outside MiFID, platforms may provide certain
payment services within the meaning of the Payment Services Directive (PSD)
57
, and
therefore subject to the AMLD.
For platforms not covered by MiFID and the PSD, Member States generally impose rules
compliance with legislation on anti-money laundering and terrorist financing in their
domestic bespoke regimes.
58
Disclosure requirements on issuers:
The Prospectus Directive (PD)
59
requires a prospectus to be approved by the national
competent authority of the home Member State and published when securities are offered
to the public or admitted to trading on a regulated market. This requirement only applies
to transferable securities as defined in MiFID.
60
Therefore, an obligation to publish a
prospectus could apply to offerings of securities through crowdfunding platforms.
However, the obligation to draw up a harmonised EU prospectus only becomes applicable
from a total consideration of EUR 5 million. For offers below EUR 5 million, issuers or
offerors willing to offer securities through crowdfunding platforms may or may not need
to produce a EU prospectus depending on whether the Member States concerned have
chosen to extend the EU-prospectus obligation below EUR 5 million in their national
56
Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention
of the use of the financial system for the purpose of money laundering and terrorist financing.
Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment
services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and
repealing Directive 97/5/EC.
The AMLD requires Member States to extend some or all of the AMLD provisions to other professions and
categories of undertakings that those explicitly listed in the Directive, which engage in activities “which are
particularly likely to be used for money laundering or terrorist financing purposes”
Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus
to be published when securities are offered to the public or admitted to trading and amending Directive
2001/34/EC.
Except for money market instruments having a maturity of less than 12 months, which are out of the scope
of the PD in spite of being transferable securities.
57
58
59
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rules, and on what lower "national" threshold, if any, they have chosen for that purpose.
For offers with a total consideration below the "national" threshold set out by each
Member State, the Member State may impose specific national disclosure requirements
for offers intermediated through crowdfunding platforms (see the row on the size of offers
in the table on investment-based crowdfunding in Annex 2).
The Commission's legislative proposal for the Prospectus Regulation
61
exempts the
smallest capital raisings from the prospectus obligation, under the premise that imposing
an EU-prospectus for offers of securities to the public of a consideration below EUR
500,000 (as is often the case on crowdfunding platforms) is disproportionately costly in
relation to the envisaged proceeds of the offer. Such a threshold of EUR 500,000 would
provide a safe harbour for the development of the vast majority of crowdfunding
initiatives, meaning that can set disclosure regimes appropriate to their national markets,
as long as they are done in a proportionate way.
62
Moreover, the Distance Marketing of Financial Services Directive (DMFSD)
63
may also
apply whenever a platform, qualifying as a supplier or intermediary, is involved in the
conclusion of a 'distance contract' for any financial services products and engages in
"business-to-consumer commercial practices". Under the Distance Marketing of Financial
Services Directive, consumers have a right to obtain pre-contractual information listed in
the Directive as well as right of withdrawal from a distance contract within 14 days
without justification. Information items listed in DMFSD cover information of a general
nature applicable to all kinds of financial services.
Domestic bespoke regimes generally set out specific disclosure requirements, such as
mandatory documents containing some key information on the issuer, the investment or
the project for which funding is sought (including potential risks). These are described in
greater detail in the row on disclosure to investors by the issuers in the table on
investment-based crowdfunding in Annex 2. There may be a requirement to submit the
information document to the supervisor, although the document itself is not necessarily
approved by the supervisor. Depending on the Member State the information document
may or may not be required to follow a template.
Bespoke regimes on crowdfunding in some Member States were developed as exceptions
to the domestic prospectus regime, notably in cases where Member States extend the
61
COM(2015) 583 final.
Recital 12 of the Prospectus Regulation proposal states that " For offers of securities to the public of a
consideration below EUR 500 000, the cost of producing a prospectus in accordance with this Regulation is
likely to be disproportionate to the envisaged proceeds of the offer. It is therefore appropriate that the
requirement to draw up a prospectus under this Regulation should not apply to offers of such small scale.
Member States should refrain to impose at national level disclosure requirements which would constitute a
disproportionate or unnecessary burden in relation to such offers and thus increase fragmentation of the
internal market."
Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the
distance marketing of consumer financial services and amending Council Directive 90/619/EEC and
Directives 97/7/EC and 98/27/EC.
62
63
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obligation to publish a prospectus to financial instruments that are not in the scope of the
PD (e.g. profit-participating loans or subordinated loans).
For those Member States that have specific exemptions from the obligation to publish a
prospectus for offers through crowdfunding platforms, the thresholds under which the
exemptions become applicable varies from EUR 300,000 to EUR 5,000,000. In addition,
some Member States have different thresholds depending on the categories of investors
targeted by the offers.
Information and risk-warning requirements imposed on platforms:
As illustrated in greater detail in the row on information requirements and risks warnings
by platforms, several domestic bespoke regimes have specific requirements on the
information that platforms have to provide in a standardised form, notably in regard to the
risks of crowdfunding offerings (e.g. risk of illiquidity, of losing all the money invested
etc.), but also on the platform itself. There are also requirements for information to be
clear, sufficient, appropriate, accessible, objective and not misleading. However, at the EU
level the Unfair Commercial Practices Directive already prohibits practices where the
traders provides untruthful or deceiving information, or omits material information that
the consumer needs to make informed decision.
64
These information requirements may be
complemented by other investor education requirements (for example, the investor must
answer positively to a questionnaire demonstrating that she or he understands the features
and risks of the investment) or statements signed by investors acknowledging their
understanding of the risks.
Obligations for platforms to perform due diligence:
Some domestic bespoke regimes have requirements related to a platform's role regarding
the offering and the need to conduct some due diligence on the offerings in terms of
mandatory review, disclosure and reporting. Platforms may also be required to disclose
the pre-determined criteria used in selecting the projects. More details on these domestic
requirements can be found in the row on due diligence in the table on investment-based
crowdfunding in Annex 2.
Limits on maximum investable amounts:
Limiting investment amounts is one feature of the general approach to protect investors
that is common to several domestic bespoke regimes (for more details, see the row on
maximum investable amounts in the table on investment-based crowdfunding in Annex
2). These limitations take different forms and range from fixed maximum ceilings to
variable shares of personal income, wealth or financial assets. These ceilings can be
calculated per each offering or on the basis of total investment in a given timeframe (for
example one year). Typically the ceilings vary on the basis of the categorisation of
investors (e.g. retail, sophisticated and professional investors; accredited and non-
accredited investors; natural and legal persons). In one Member State applying the MiFID
Article 3 exemption for crowdfunding platforms, there are no limitations, but investors are
exempt from the appropriateness test if their investments do not exceed certain thresholds.
64
Article 6 and 7, Directive 2005/29/EC.
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In one Member State there are no upper limits on the investment in securities through
regulated crowdfunding platforms, while in another Member State investors can only
invest through crowdfunding platforms if they meet certain criteria. Typically, these
limitations (on aggregated limits) are implemented through self-declaration by the
investors themselves.
4.2.
Regulation of lending-based crowdfunding
Lending-based platforms currently exist in the majority of Member States.
65
With a few
exceptions of platforms with a history of up to ten years, the majority of platforms have only
entered in the market in the last five years. Four Member States recently introduced bespoke
regimes to regulate crowd-lending as a specific commercial activity. Other Member States
have so far opted for a more 'wait-and-see' approach and require lending platforms to comply
with existing general rules applicable on a national level.
Crowd-lending business normally entails three main activities: credit intermediation, money
handling and debt collection. Lending platforms act as intermediaries providing services that
allow borrowers to obtain a, mostly unsecured, loan and lenders to invest in the loan in
exchange for a financial return. In particular, these services, for which the platforms charge a
fee, include the following: (1) registration and checks of borrowers' identity and eligibility for
the loan, including their creditworthiness; (2) online tools enabling lenders either to choose
which borrower(s) to lend to or use automated bidding functions to better diversify their risk;
(3) setting an interest rate based borrowers' credit profile or enabling online reverse auctions;
(4) processing of lenders' money onto borrowers' accounts, and borrowers' repayments
according to the agreed terms; (5) debt collection on behalf of lenders if borrowers do not
repay on time. Depending on the business model, some of these activities and services may
also be outsourced to external suppliers, including authorised payment service providers;
accordingly, the platform would no longer need to apply for necessary authorisations.
Unlike the traditional banking model, lenders, rather than platforms, invest in loans to
borrowers, unless platforms also choose to invest their own funds. These investments can
yield a higher return than saving accounts offered by banks
66
, but can be subject to higher
risk. No regulatory safeguards such as bank deposit guarantee schemes or investor protection
schemes protect these investments. If the borrower defaults or the platform becomes
insolvent, the lenders risk losing part or all of their investment.
67
Proper credit risk
65
To the Commission Services' knowledge, crowdfunding platforms do not appear to exist in six Member
States.
Savings accounts fall within the meaning of deposits under the Article 2(3) of the Directive 2014/49/EU of
the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes, i.e. a credit
balance which results from funds left in an account or from temporary situations deriving from normal
banking transactions and which a credit institution is required to repay under the legal and contractual
conditions applicable, including a fixed-term deposit and a savings deposit.
As part of their business offering, therefore, some platforms offer provision or contingent funds to cover,
mostly in part, lenders' losses from borrowers' defaults. However, the cumulative effect of a short history of
a platform and the maturity of loans ranging up to five or more years may render some of these contingent
funds incapable to cover the losses in the event of level of defaults higher than predicted.
66
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management and money handling are therefore vital for the viability of the platform in a
longer run and for the protection of lenders and borrowers.
4.2.1. Getting authorised
National authorisation requirements differ by Member State. They range from licensing
requirements specific to crowdfunding activity under bespoke regimes to general trade
licenses needed on national level in order to operate on the market and to provide consumer
credit or credit brokerage services. There are also instances when platforms operate under a
payment institution license under the Payment Services Directive.
68
Under the bespoke regimes, platforms are subject to an authorisation and registration
procedure similar to that applicable to financial intermediaries, and supervision by national
competent authorities. Depending on the type of authorisation, crowd-lending as a regulated
activity under a bespoke regime is subject to additional rules on capital requirements,
professional qualification and conduct. All Member States with bespoke regimes either in
place or underway, with one exception, impose or plan to apply capital requirements. Some
bespoke regimes also require platforms to have arrangements in place to ensure that loans
continue to be administered if a platform goes out of business and impose on platforms the
organisational duty to draft, publish online and enforce policies and procedures in order to
ensure business continuity. The standards of professional qualification and conduct rules vary
by Member States.
Similar rules apply if platforms choose to apply for a payment institution license. In order for
platforms to get authorized as payment institutions, they must meet the conditions set out in
the Payment Services Directive, such as rules on initial capital (the levels of which range from
EUR 20,000 to EUR 125,000 depending on the nature of the payment service) and own funds
as well as other safeguards in relation to business continuity and contingency plans, notably in
case platforms fail and become insolvent.
69
4.2.2. Lending and credit intermediation
Approaches to regulating the lending activity vary depending on the business models and by
Member State. Rules of different nature apply if lenders and/or borrowers fall into specific
categories defined by national laws. These rules distinguish between retail and institutional or
professional investors, advised clients, sophisticated retail or high net worth clients
70
, non-
68
https://acpr.banque-
france.fr/fileadmin/user_upload/acp/Communication/Communiques%20de%20presse/20140930-
Sinformer_sur_le_nouveau_cadre_applicable_au_financement_participatif.pdf
Articles 5, 7, 8 of the Directive 2007/64/EC of the European Parliament and of the Council of 13 November
2007 on payment services in the internal market; articles 5, 7, 8, 9 of the revised Directive 2015/2366 of the
European Parliament and of the Council of 25 November 2015 on payment services in the internal market
that will repeal the former directive with effect from 13 January 2018.
In one Member State, rules providing additional consumer protections include, e.g. restricting direct offer
financial promotions to professional clients; sophisticated retail clients; high net worth retail clients; retail
clients who are advised; or retail clients who commit not to invest more than 10% of their net investable
assets. See: http://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf, p. 36
69
70
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accredited and accredited investors
71
. For example, with the likely aim to ensure responsible
lending, platforms are obliged to give risk warnings to consumers, rather than explicitly
required to assess their creditworthiness. Annex 2 sets out the rules applicable in bespoke
regimes in relation to information disclosures
72
, conflict of interest, and due diligence, among
others.
Consumer lending business models such as peer-to-peer or business-to-consumer could
potentially trigger application of national rules implementing several EU consumer protection
directives, applicable to business-to-consumer relations.
The Consumer Credit Directive
73
is applicable to credit agreements between creditors who
grant or promise credit in the course of their trade, business, or profession and consumers.
The most relevant consumer protection standards include the right to withdraw from the
contract, the obligation to provide minimum pre-contractual information, to perform a
creditworthiness assessment and to determine the total cost of the credit (Annual percentage
rate of charge). Furthermore, under the Directive, creditors should have access to databases
for assessing the creditworthiness of consumers in case of cross-border credit.
Platforms often carry out activities that normally pertain to creditors, such as credit
worthiness assessment and debt collection. In most cases, however, they neither conclude loan
agreements with borrowers nor make decisions on behalf of lenders as to which borrowers to
lend to. These issues are potentially relevant for applying provisions transposing the Directive
as it provides for obligations for creditors and credit intermediaries.
Under the Distance Marketing of Financial Services Directive, whenever a platform,
qualifying as a supplier or intermediary is involved in the conclusion of a 'distance contract'
for any financial services products and engages in "business-to-consumer commercial
practices", consumers have a right to obtain pre-contractual information listed in the
Directive.
74
The Directive on Unfair Commercial Practices protects consumers against unfair commercial
practices by traders which are either misleading, including omissions to provide material
information to the consumer, aggressive or contrary to the requirements of professional
diligence. An invitation to purchase is bound to give a limited number of key items of
71
In two Member States, limits on maximum investable amounts apply for persons other than professional
investors.
For example, in relation to information disclosure, in one Member State platforms are obliged to disclose the
borrowers' data, if they are natural persons, prior to concluding the loan agreements. This may deter
potential borrowers as it lifts the anonymity of participants normally inherent in the online market place and
acknowledged in another Member State (allowing platforms to disclose the borrowers' identity, if the latter
does not repay on time).
Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements
for consumers.
Articles 4, 5 and 6 of the Directive 2002/65/EC of the European Parliament and of the Council of 23
September 2002 concerning the distance marketing of consumer financial services and amending Council
Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC
72
73
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information which the consumer needs to make an informed transactional decision.
75
By way
of another example, the Directive bans the use of terms such as "free", if used in a misleading
way.
76
The latter example is consistent with the rules in one Member State requiring firms to
use terms such as ‘protected’ or ‘secure’, or make comparisons of returns to savings accounts,
where that is fair, clear and not misleading.
77
In addition, under the Unfair Contract Terms Directive, if any standard terms and conditions,
which are not individually negotiated, create a significant imbalance in the rights and
obligations of the parties to the detriment of consumers contrary to the requirements of good
faith, they are not binding on the consumers.
78
4.2.3. Money handling
Money-handling is present in all types of crowdfunding loans. The two examples below show
the way platforms carry out processing of payments from lenders to borrowers. In a typical
model, lenders transfer money in and out of their client account. When the lender's money is
not lent out, it is held on trust in a segregated client account at platform's bank account. The
funds are treated as separate from the platform’s own accounts and are subject to internal
control mechanisms and accounting procedures in accordance with national rules on client
money handling. In another model, the money does not flow through the platform, as the
payment services are outsourced to a partner credit institution; the latter provides a loan to a
borrower in order to consequently resell the debt to investor(s).
The provision of payment services is a regulated activity that may be undertaken by specific
categories of service providers, such as credit institutions, e-money and payment institutions,
and subject to prudential supervision. The national rules implementing the Payment Services
Directive could apply to crowdfunding platforms, covering the payment side of their
activities, if the latter, depending on their business models, act (i) for both the payer and the
payee and (ii) handle their funds. In this case, the platforms are subject to an obligation to
safeguard all funds which have been received from the payment service users or through
another payment service provider for the execution of payment transactions and deposit them
in a separate account in a credit institution.
79
When platforms receive money from lenders, usually through bank transfers, they might also
be subject to applicable anti-money laundering and counter-terrorist financing rules set out in
the AMLD, in particular an obligation to carry out a due diligence on the basis of the risk
assessment. Relevant for the risk assessment would be the identity of the consumer, payment
75
Articles 6 to 9 of the Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005
concerning unfair business-to-consumer commercial practices in the internal market (‘Unfair Commercial
Practices Directive’).
Annex I, point 20 of the Unfair Commercial Practices Directive.
http://www.fca.org.uk/static/documents/policy-statements/ps14-04.pdf, p. 31
Articles 3 and 6 of the Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.
Article 9 of the Payment Services Directive; Article 10 of the revised Payment Services Directive.
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method (as cash transactions give rise to higher risks than cashless ones), geographical risk
factor such as country of origin of the credit institution.
5.
E
XTENT OF CROSS
-
BORDER ACTIVITIES
80
The available data suggest that crowdfunding remains largely national, with cross-border
activity still very limited. Therefore, those Member States that have introduced bespoke
regimes are tailoring regulation to the characteristics and needs of local markets.
Although national regimes are overall consistent in their approach, some stakeholders have
expressed the view that divergences in the specific design and implementation of regulatory
frameworks could create obstacles to the development of cross-border activities and lead to
market fragmentation. There are examples of both investment- and lending-based
crowdfunding platforms which have overcome the diverging domestic regulatory frameworks
and have successfully set up individual legal entities in each country where they seek to
operate. However, the need to comply with different requirements may be costly for
platforms. This could prevent smaller platforms achieving the scale necessary to comply with
the costs of operating across borders.
5.1.
Investment-based crowdfunding
Expert discussions show divergences in Member States' approaches to cross-border activity.
These divergences partly stem from the lack of a common definition of what types of services
constitute "crowdfunding". Some Member States consider that platforms must be authorised
under their bespoke regimes to operate as crowdfunding platforms irrespective of the fact that
they may have a MiFID passport. Other Member States consider that a MiFID-authorised
investment firm should be allowed to carry out crowdfunding activities in other Member
States through its passport. To the extent that certain crowdfunding activities are not covered
by secondary EU law and the Treaty provisions on the fundamental freedoms apply, Member
States may impose justified and proportionate measures in the general interest such as for
investor protection. Expert views also raised questions on the extent to which an offer through
an online platform located in another Member State can be considered a domestic offer and
under which criteria.
Platforms will need a sufficient pipeline of project owners seeking funding, or of investors, to
grow their business. One response to the search for economies of scale by platforms has been
to develop cross-border participation, particularly where the platform is located in a smaller
Member State. The lack of a passport could make it harder for platforms to achieve the
scalability they need.
81
At the same time, some platforms in the ECSF have reported that
obtaining a MiFID authorisation may be too costly and burdensome. In its Opinion and
Advice, ESMA highlighted that some platforms are structuring business models so as to fall
outside the scope of MiFID requirements. Questions have also been raised as to how
80
The analysis of this section largely draws on the CMU Green Paper consultation and on discussions held at
the meetings of the ECESG and the ECSF of 10 February and 17 February, respectively.
Regimes based on MiFID Article 3 by definition do not allow for cross-border activity.
81
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compatible some other national regimes are with MiFID or with the Treaty provisions on the
fundamental freedoms.
5.2.
Lending-based crowdfunding
The platforms from smaller countries are more likely to look out for cross-border
opportunities to achieve scale, as opposed to those operating in the large markets and having
enough opportunities to grow domestically. However, the recent market developments show
that even big players look for acquisition opportunities in order to expand outside their home
markets.
82
In addition, several platforms offer on their website and arguably also provide
online services to lenders, and sometimes also borrowers, outside their home country.
83
In the absence of EU legislation, neither crowd-lending nor credit intermediation are among
activities that enjoy EU passporting rights. In the absence of an EU passport, if platforms
want to provide services in host Member States, they may need to obtain authorisation from
the local authorities. Platforms authorised as payment institutions could use their EU passport
to provide services in host Member States. However, as the Payment Services Directive
covers only the payment side of the crowd-lending activity, such a platform would likely
require, for instance a credit brokerage license and/or an authorisation under a bespoke regime
in that Member State. In this connection, one Member State sets out a geographical scope for
the provision of crowdfunding activities. Only platforms authorised in that Member State can
provide their services to borrowers and lenders legally resident in the country; if foreign
platforms' services are solicited by a client, they are not considered to be provided in the
Member Sate.
In addition to a need to apply for local authorisations, barriers may prevent platforms from
lending to consumers in host Member States. These are knowledge of the local market
conditions, availability of credit data on borrowers, knowledge of local rules in relation to,
among others, contractual laws, insolvency procedures and debt recovery in the event the
borrowers' defaults, currency exchange risks and so on. The Commission is currently looking
into the obstacles to cross-border sales of retail financial services, including loans.
84
6.
C
ONCLUSIONS
This report demonstrates that crowdfunding remains relatively small in the EU but is
developing rapidly. It has the potential to be a key source of financing for SMEs over the long
term.
82
Funding Circle is currently active in the UK, US, Germany, Spain and the Netherlands.
http://www.crowdfundinsider.com/2015/10/75982-funding-circle-goes-global-with-acquisition-of-zencap/
E.g. Finnish platform Fellow Finance accepts investors from all Europe; Estonian platform Bondora accepts
investors from all Europe and lends to borrowers in Finland, Estonia, Slovakia and Spain; Swedish platform
Trustbuddy accepted investors from other Member States; it is in bankruptcy proceedings and under
investigation in relation to mishandling of client money.
GREEN PAPER on retail financial services: Better products, more choice, and greater opportunities for
consumers and businesses, COM/2015/0630 final.
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Crowdfunding is one of many technological innovations that have the potential to transform
the financial system. Therefore, crowdfunding warrants consideration as part of our broader
approach to FinTech and the digitalisation of financial services, which is being looked at
further in the Green Paper on Retail Financial Services.
As demonstrated in this report, to promote the growth of crowdfunding and appropriately
protect investors, EU Member States have put in place a range of measures to regulate
crowdfunding – either using the EU legislative framework where appropriate or via national
regimes. These national frameworks are broadly consistent in terms of the objectives and
outcomes they seek to achieve, but are tailored to local markets and domestic regulatory
approaches.
Given the predominantly local nature of crowdfunding, there is no strong case for EU level
policy intervention at this juncture. Crowdfunding is still relatively small and needs space to
innovate and develop. Given the dynamism of crowdfunding and the potential for future cross
border expansion, it will be important to monitor the development of the sector and the
effectiveness, and degree of convergence of, national regulatory frameworks.
The Commission Services will therefore maintain regular dialogue, through twice yearly
meetings, with the European Supervisory Authorities, Member States, and the crowdfunding
sector to promote convergence, sharing of best practice and keep developments under review.
We will assess the development of cross-border business and consider in particular the
investor protection aspects. This will ensure the Commission is able to respond in a timely
manner if further steps to support convergence of regulatory approaches are needed, both to
promote the development of the sector and to ensure appropriate investor protection.
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A
NNEX
1: M
AIN TYPES OF BUSINESS MODELS OF CROWDFUNDING
Investment-based crowdfunding: Companies issue equity, debt or contractual
instruments to crowd-investors, typically through an online platform (although this is
not always the case). This model has been developed through a variety of funding
mechanisms, often to adapt to different regulatory requirements in EU Member
States:
For example, when investors invest in the equity of a company through a
crowdfunding platform, they can do so either directly and hold shares of a
company themselves, or through a nominee account, whereby a third party holds
the legal titles of the equity on behalf of the investors who are the beneficial
owner of the security.
In other models, investors invest indirectly through a participation in a separate
legal entity (e.g. special purpose vehicle or collective investment scheme set-up
by the platform) which then invests in the crowdfunding project and holds the
legal title of the equity. This is used for example in real-estate crowdfunding
(where the intermediary vehicle invests in property and investors hold shares of
the vehicle).
The typical debt investment-based crowdfunding model involves a bond (for
example mini-bonds
85
), at a fixed interest rate. There are also examples of
crowdfunding models involving convertible bonds (where bonds can be converted
into equity at a predetermined conversion rate at a later stage).
Finally, in a profit-sharing / revenue-sharing crowdfunding model, businesses can
share future profits or revenues with the crowd in return for funding (whereas the
investor does not obtain any long-term ownership interest in the company through
the securities that the investor has bought). Often these forms of crowdfunding
are operated through contractual instruments (e.g. silent partnerships) which
would not qualify as a security under company law.
Lending-based crowdfunding (also known as peer-to-peer lending or marketplace
lending): Companies or individuals seek to obtain funds from the public through
platforms in the form of a loan agreement. This form of crowdfunding also comprises
several variations of the basic business model (often arising from differences in legal
structures across Member States):
Consumer lending, where individuals (consumer-to-consumer) or institutions
(business-to-consumers) lend directly to individuals, typically through unsecured
loans, where no collateral is requested from borrowers.
Business lending, where individuals (consumer-to-business) or institutions
(business-to-business) lend directly to businesses. Loans can be secured or
unsecured.
85
Typically, mini-bonds have a maturity of three to five years and are an unsecured, unconvertible and
non-transferable security.
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In the more typical business model, the loan contract is between the lender and
the borrower; the platform would provide the contractual terms and conditions,
would send contracts to the parties, and coordinate payments and repayments.
In another business model, a platform would cooperate with a credit institution
which originates the loans (loan contract is between the lender and the bank, and
the lenders/borrowers have an intermediation contract with the platform).
In yet another business model, the pledged amounts are transferred to an escrow
account, which is managed by the platform or a partner bank. Once the threshold
pledge is reached, payments are transferred from the escrow account to the
project's account.
Invoice trading crowdfunding: a form of asset-based financing whereby businesses
sell unpaid invoices or receivables, individually or in a bundle, to a pool of investors
through an online platform. Typically investors are institutions and high net worth
individuals, and rates are set through online auctions.
Reward-based crowdfunding: Individuals donate to a project or business with
expectations of receiving in return a non-financial reward, such as goods or services,
at a later stage in exchange of their contribution. The reward may or may not be
proportionate to the backers funding; when it is proportionate, this model is also
defined as pre-selling crowdfunding.
Donation-based crowdfunding: Individuals donate amounts to meet the larger funding
aim of a specific charitable project while receiving no financial or material return.
Hybrid models of crowdfunding: Combine elements of the other types of
crowdfunding.
33
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A
NNEX
2: O
VERVIEW OF
C
ROWDFUNDING REGULATORY
F
RAMEWORKS IN A SELECTION OF
EU M
EMBER
S
TATES
86
Investment-based crowdfunding
Austria
Belgium
No but
"crowdfunding
exemption" in the
prospectus regime
Spain
France
UK
Italy
Germany
Portugal
Bespoke regime
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Scope
Shares, bonds,
business shares
in limited
companies and
cooperatives,
participation
rights, silent
partnerships and
subordinated
N/A
Securities and
lending
Bespoke regime:
ordinary shares and
plain vanilla fixed
rate bonds.
Securities and
lending
Equity
Profit-participating
loans, subordinated
loans, or other
investment products
(which grant the
right to interest and
repayment, or in
exchange for the
temporary provision
of funds, grant a
claim for cash
settlement).
Financial
Instruments granting
rights to share
capital, a share in
dividends or a stake
in profit, lending,
reward and donation
Entry into force
1 September2015
17 May 2014. A
legislative proposal
on investment-based
crowdfunding is still
being discussed.
29 April 2015
1 October 2014
1 April 2014
17 December 2012
(Law) and 26 June
2013 (Consob
Regulation).
10 July 2015
Crowdfunding law:
24 August 2015.
Will enter into force
when CMVM issues
relevant regulatory
rulings.
86
In Finland, a Crowdfunding Act has been submitted to Parliament on 7 April 2016. The act covers both investment-based and lending-based crowdfunding. It is planned
that the Act will enter into force on 1 July 2016.
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Austria
Belgium
Spain
France
UK
Italy
Germany
Portugal
No. Bespoke regime
not adopted under
exemption of Art. 3
MiFID except for
tied agents.
Platforms are
therefore not
authorized to
provide MiFID
services unless the
platforms are
managed by a
financial
intermediary.
Bespoke regime has
specific
requirements also
for the latter.
Passport
Yes if MiFID
platforms (for
transferable
securities)
N/A
No (because
platforms do not
provide MiFID
services)
Yes if MiFID
platforms
No for platforms
registered under
exemption (Art.3
MiFID)
Yes if MiFID
platforms (for
transferable
securities)
No (because
bespoke regime
developed under
exemption Art. 3
MiFID)
Yes if MiFID
platforms (for
transferable
securities)
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Austria
Belgium
Spain
France
UK
Italy
Germany
Platform must be an
investment service
enterprise providing
investment advice or
investment
brokerage services
(MIFID) pursuant to
Section 32 of the
Banking Act
(Kreditwesengesetz)
or must obtain an
authorization
pursuant to Section
34f of the Trade,
Commerce and
Industry Regulation
Act
(Gewerbeordnung –
GewO) from the
competent
authorities of the
federal states
(Länder), usually the
trade office
(Gewerbeamt). .
For MIFID
platforms:
Depending on the
MiFID investment
services and
activities.
Portugal
Authorisation for
business
investment
consulting
according to
section 136a of
Austrian Trading
Act.
Authorisation
Or
Authorisation for
Investment
Services
Undertakings
according to
section 4 (1) of
the Securities
Supervisory Act.
N/A
Authorisation and
registration by the
National Securities
Market Commission
(CNMV).
For MiFID and non-
MIFID platforms:
authorisation by
AMF.
Authorisation by
FCA. MiFID
authorisation but
firms will also need
to consider whether
they are performing
other activities set
out in the Regulated
Activities Order.
Authorisation by
Consob (banks and
authorised
investment
companies do not
need authorisation
but must be enrolled
in the Register of
platforms)
Authorisation by the
CMVM
For business
investment
consulting: none.
Minimum capital
requirements
For MiFID
platforms:
Depending on
the MiFID
investment
services and
activities
N/A
Initial: € 60,000
(share capital), or a
professional liability
insurance or a
combination of both.
If funds that are
raised exceed €2
million, minimum
equity will amount
to €120,000 (and
increase in
proportion to the
funds raised, up to
€2 million).
None for non-
MiFID platforms.
For MiFID
platforms:
Depending on the
MiFID investment
services and
activities.
CRD IV minimum
capital
requirements. The
minimum
requirement is own
funds of €50,000.
None
€50,000 or liability
insurance up to such
amount.
For platforms with a
commercial license:
professional liability
insurance.
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Austria
Belgium
Spain
France
UK
Italy
Germany
Portugal
Reception, selection
and publication of
projects;
Services
provided
Development,
establishment and
exploitation of
communication
channels to facilitate
the fundraising
between investors
and promoters.
Ancillary services.
To benefit from
the prospectus
exemption,
instruments must
be: "alternative
financial
instruments"
(shares, equity
shares, bonds,
shares in
cooperative,
participation
rights, silent
partnerships and
subordinated
loans) issued by
SMEs (as
defined by
Recommendatio
n 2003/361/EC
(i.e. transferrable
securities)
MiFID services
(mostly "reception
and transmission of
orders").
Reception and
transmission of
orders
Investment advice
or reception and
transmission of
orders
N/A
N/A
Investment advice
N/A
Financial
instruments
All types of
investment
instruments (which
is larger than MiFID
“financial
instruments”) fall
under the prospectus
law
Transferable
securities, limited
liability company's
shares (provided
that the company's
by-laws ensure their
transferability)
Platforms authorised
under bespoke
regime: ordinary
shares and fixed rate
bonds (i.e.
transferable
securities).
MiFID platforms:
financial
instruments (Annex
1 C MiFID)
Equities and debt
securities,
transferable and
non-transferable.
Bespoke set of rules
for non-readily
realisable securities
(NRRS).
Shares or units
(quotas) of the
equity capital of
innovative start-ups
and innovative
SMEs; units or
shares of collective
investment
undertakings or
other companies
investing at least
70% in innovative
start-ups and
innovative SMEs
To benefit from the
prospectus
exemption,
instruments must be:
profit-participating
loans, subordinated
loans, other
investment products
which grant the right
to interest and
repayment, or in
exchange for the
temporary provision
of funds, grant a
claim for cash
settlements.
No limitation as to
the financial
instruments to be
used for funding
purposes.
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Austria
Belgium
Spain
France
UK
Italy
Germany
Portugal
Money Laundering
Regulations: due
diligence about their
customers.
KYC rules
(suitability or
appropriateness;
AML checks)
Platform to
establish identity
of both issuer
and investors.
Compliance with
anti-money-
laundering and
terrorism
financing
legislation
Platforms must
assess the
experience and
knowledge of its
clients and verify
that they can take
their own
investment decisions
and understand and
prioritise
information risks.
Platforms must
ensure that no
promoter has
simultaneously
published more than
one project on a
platform; and that
the fundraising
amount per project
does not exceed €2
million (or €5
million when
projects are
exclusively targeting
accredited
investors).
Access to platforms
restricted to
registered investors
who have been
warned of and
expressly accepted
the risks.
Suitability test.
Platforms
to ensure
that investment is in
line with investor's
experience, financial
situation and risk
appetite. In case of
mismatch, platform
to refuse investor's
subscription.
Compliance with
money laundering
and terrorism
financing
legislation.
N/A
Platforms may not
make direct offer
financial promotions
(except for:
professional client
or eligible
counterparty; high
net worth retail
client; certified
sophisticated or self-
certified
sophisticated retail
client; a retail client
who is taking
regulated advice; a
restricted investor,
who commits not to
invest more than
10% of their net
investable assets in
this type of
security).
For retail investors:
Appropriateness test
by platforms
(facultative: in
alternative the
appropriateness test
is made by banks or
investment firms
which receive the
orders).
Investors must read
the financial
investor education
material published
on Consob’s website
and state one’s
awareness that the
entire investment
may be lost.
AML checks
performed by banks
receiving the orders
and payments.
Checks regarding
the suitability or
appropriateness of
the investment for
the investor
pursuant to the
Securities Trading
Act or the Financial
Investment
Brokerage
Ordinance;
AML/CFT rules in
case platforms
qualify as obliged
entities under the
AML/CFT Act
(depends on their
business activities)
Investors should
declare that they
understand business
conditions,
including risks.
Among organization
duties, platforms
must draft, make
available online and
implement policies
and procedures to
prevent money
laundering and
terrorism financing.
Where regulated
advice is not
provided:
appropriateness test.
38
Where regulated
advice is provided:
suitability test.
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Austria
Belgium
Spain
France
UK
Italy
Germany
Portugal
Size of offer
(limitations or
prospectus
requirements)
Simplified
prospectus for
total
considerations of
more than €1.5
million but less
than €5 million
over a seven year
period, and for
public offers of
bonds or shares
of at least
€250,000 but not
more than €5
million. 3) If
more than €5
million in capital
has been raised,
a prospectus is
required.
A prospectus is
required if an offer
exceeds €100,000.
Under the
"crowdfunding
exemption", this
amount is raised to
€300,000. Note that
this exemption
applies to all types
of offer, thus not
only to those made
through
crowdfunding
platforms
€2 million per
project, per
platform, in a given
year. €5 million, if
the offer is limited
to accredited
investors
€1 million per year
per project
Lower than €5
million
Lower than €5
million.
Exemption from the
full prospectus
requirement for
offers of profit-
participating loans,
subordinated loans
or other investment
products below €2.5
million. This
exemption is not
available where an
investment of the
issuer is being
publicly offered
using the exemption
of Section 2 para. 1
no. 3 of the Capital
Investment Act.
€1 million per year
and per project. €5
million if the offer is
limited to
professional ((i.e.
person with an
annual income
above
€100,000)/legal
persons only.
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Austria
Belgium
Spain
France
UK
Italy
Germany
If the investor has
freely available
assets of at least
€100,000: up to
€10,000 in an issue.
If the investor does
not have freely
available assets of at
least €100,000:
twice the investor's
monthly income, but
in any case not more
than €10,000
In all other cases
(particularly if the
investor does not
provide a statement
on assets and
income): €1,000
No limits for
corporate entities.
Portugal
Maximum
investable
amounts
€5,000 per
individual
investor per year.
This limit does
not apply to: (i)
legal persons, (ii)
professional
investors.
Exceptionally,
individual
investors can
invest more than
€5,000, but no
more than either
the double of
their monthly net
income or 10%
of their financial
assets.
Non -accredited
investors: €3,000
per project and
maximum €10,000 a
year.
No hard investment
limit.
Under the
"crowdfunding
exemption",
individual amount
that each investor
can invest is limited
to €1,000.
Accredited
investors: no limit.
Accredited investors
are (i) Institutional
investors; (ii)
Companies with €1
million of assets, €2
million of annual
turnover or
€300,000 of equity;
(iii) Individuals with
€50,000 of annual
income or €100,000
of financial assets.
No restriction with
regard to the type of
investors, the
number of investors,
or maximum
investment limits.
Retail investors who
do not take advice,
are not high net
worth and are not
sophisticated: not to
invest more than
10% of their net
investable assets.
No limit.
Exemption from
appropriateness test
for investments
under the following
thresholds: (i)
Natural persons:
€500 per individual
order and €1,000 in
annual total orders;
(ii) Legal persons:
€5,000 per
individual order and
€10,000 in annual
total orders.
Based on self-
declaration by
investors.
€3,000 per
project and a total of
€10,000 per year.
This limit does not
apply to: (i) legal
persons and (ii)
professional
investors.
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Austria
Belgium
Spain
France
UK
Italy
Germany
If no prospectus is
required: Issuer
must prepare an
investment
information sheet
(VIB) and submit it
to BaFin. VIB must:
present essential
information about
the investment;
contain a notice that
there is no
prospectus approved
by BaFin; contain a
notice that further
information may be
requested from
offeror or issuer;
warn about the risks.
Investors must
confirm that they
have taken note
(signature or
equivalent). Civil
liability of offeror if
VIB is misleading or
inaccurate.
Issuer must comply
with rules on
marketing of
investments
(warning of risks).
Portugal
Disclosure to
investors by the
issuer
For total
considerations of
at least €100,00
but less than €1.5
million, or offers
of bonds and
shares of more
than €100,000
but less than
€250,000: Issuer
must provide
information on
issuer,
alternative
financial
instruments and
risks, annual
report, opening
balance sheet
business plan,
terms and
conditions
(information
investment
sheet).
N/A
All disclosure
requirements and
risk warnings are
directly imposed on
the platforms.
Complete, clear and
detailed project
description.
Information about
the promoter and the
securities. Project
owner is liable to
investors for the
information
provided.
Mandatory
document with
information
provided by the
issuer and the
platform (AMF
template):
procedures for
transmission of
subscription orders
to the issuer; details
of fees charged to
the investor and
indication that it is
possible to request a
description of the
services provided to
the issuer and the
associated costs;
description of the
specific risks linked
to the business and
to the project owner.
Firms to: disclose
sufficient
information in a fair,
clear and not
misleading manner;
provide appropriate
information about
designated
investments so that
the client is
reasonably able to
understand the
nature and risks and
to take investment
decisions on an
informed basis.
Issuers encouraging
investment in their
own securities are
prohibited to
communicating
financial promotions
in the course of
business, unless an
authorised person
has approved the
promotion or an
exemption exists in
secondary
legislation.
Publication of
information (in a
short, correct and
clear way, using the
Consob standard
form).
All the information
is provided by the
offeror under own
responsibility and
there is no
requirement of prior
approval by Consob.
Offerors allowed to
use other
communication
tools such as films,
interviews, slides,
pitches.
Issuer must prepare
a document called
"Key information
for investors in
crowdfunding
investment"
41
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Austria
Information on
the platform
operator.
Information
about issuer
selection
requirements.
Information
about type,
amount and
frequency of
collected
payments.
Platform to
inform about risk
of loss and that
investors should
preferably invest
assets which will
not be needed in
cash in the near
future.
Belgium
Spain
Warnings on: risks
entailed in investing
in the projects
published by the
platforms; platforms
are not investment
firms or credit
institutions; projects
are not subject to the
authorisation and
supervision,
information
provided by
promoters has not
been reviewed by
supervisor and does
not constitute an
approved
prospectus.
Requirements on
investor's
information and
representations prior
to the investment.
France
Platforms must have
a restricted-access
website with the
following
characteristics:
access to details of
the offers reserved
to potential
investors who have
given personal
details, read the
risks and expressly
accepted them;
website shall
propose several
projects; The
projects shall have
been selected on the
basis of criteria and
in accordance with a
procedure that have
been predefined and
published on the
website.
UK
Italy
Germany
Portugal
Information
requirements &
risk warnings by
platforms
N/A
Requirement not to
disguise, diminish or
obscure important
items, statements or
warnings.
Information about:
activities performed;
investors’ fees;
taxation benefits;
general risks related
to crowdfunding
investments
For each offer,
information on:
risks; issuer and the
financial
instruments offered;
the offer; services
offered by the
platform in relation
to the offer.
If platform provided
investment advice:
must provide the
VIB (see above) to
potential investor in
good time prior to
purchase of the
investment.
Detailed information
available on
products "key
information for
investors in
crowdfunding",
information on the
platform itself, and
ongoing information
on the funded
entities and projects.
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Austria
Belgium
Spain
France
Platforms must
perform due
diligence in
selecting the
projects and disclose
the pre-determined
criteria used in the
selection process.
Issuer is responsible
for the
completeness,
accuracy and
balanced nature of
the information
provided, while the
platform monitors
that the issuer
provides consistent
and clear
information.
UK
Italy
Germany
Portugal
Due diligence
No requirement
but platform
must check the
completeness,
comprehensibilit
y and
consistency of
issuer's
information.
N/A
Platform shall verify
that the information
about the project
required under the
law to be disclosed
to investors is
complete.
No obligation on
what due diligence
procedures must be
followed. Firms
must disclose the
nature of their
service and
appropriate
information about it.
Platforms must
provide detailed
information on
strategies for the
selection of the
offers to be
presented on the
platform.
N/A
N/A
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Austria
Belgium
Spain
France
UK
Italy
Platforms must
follow specific rules
of conduct similar
but lighter than ones
provided for
investment firms.
Platforms must
work with diligence,
fairness and
transparency,
avoiding any
conflicts of interest
which could arise in
the management of
the platform that
may affect the
interests of the
investors and the
issuers, and ensuring
equal treatment of
the beneficiaries of
the offers who are in
identical conditions.
Germany
Portugal
Conflict of
interest
Operator cannot
issue on own
platform.
Operator allowed
to invest through
own platform but
only to a very
small extent to
facilitate
information
flows between
issuers and
investors.
N/A
Platform to publish
a policy on conflict
of interests;
Platform's directors,
managers,
employees to avoid
conflict of interests;
Platform, directors,
managers and
significant
shareholders can
invest in a project
(max. 10%) and can
act as an issuer
(max. 10% of funds
raised through the
platform)
Platforms are
subject to rules
relating to the
management of
conflicts of interest
(General Regulation
of AMF).
Platforms to identify
possible conflicts of
interest that may
entail a material risk
of damage to the
interests, to keep a
record of these
possible conflicts
and take all
reasonable steps to
avoid the conflict
leading to loss for
clients. Where the
risk cannot be
managed, it should
be disclosed to
clients.
Platforms required
to disclose any fees,
payments or other
monetary benefits
that they receive
from third parties
other than the
investors in
connection with the
services provided
Platforms to be
organised to avoid
conflict of interests;
Platforms ' officers
and employees
cannot have
interests opposed to
those of investors.
Platform cannot
offer advice on
projects published
on its website.
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Austria
Belgium
Spain
France
UK
FCA threshold
conditions (e.g.
appropriate
resources; employ
people who are
competent, fit and
proper for their role;
suitable business
model).
Employees
controlling the
business must have
honesty, integrity
and good reputation;
must be financially
sound and have
appropriate
competence and
capability for their
role.
Italy
Germany
Portugal
Professional
requirements
Depends on the
authorisation
(either business
investment
consulting or
Investment
Services
Undertaking)
N/A
Recognised
knowledge,
experience and
professional repute
of directors and
managers
Platforms managers
or administrators
must provide
evidence of the
required level of
professional skills
(requirements
examined by AMF)
prior to the
platforms
registration.
Appropriate
professional skills
and good repute
requirements of
crowdfunding
investment advisers.
Integrity
requirements for the
controlling
shareholders.
Integrity and
professional
requirements for the
persons who
perform managerial
and supervisory
functions.
Reliability, expertise
shown by passing
exam conducted by
the Chamber of
Industry and
Commerce.
Platform should
have necessary
human, technical,
material and
financial resources.
Assessment of
platforms' officers
by CMVM
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Overview of domestic regulatory frameworks on lending-based crowdfunding
Spain
Bespoke regime
Entry into force
Yes
29 April 2015
Yes
1 October 2014
France
Yes
1 April 2014
Consumer-to-
Consumer; Business
to consumer;
Consumer-to –
Business; Business-
to-business if the
borrower is a sole
trader or a
partnership
consisting of two or
three persons or an
unincorporated body
of persons and the
loan amount does not
exceed £25,000.
UK
Yes
Q1 2016 (expected)
Portugal
Scope of lenders
and borrowers
(Consumers-to-
Consumers,
Consumer-to-
Business,
business-to-
consumers,
business-to-
business)
Consumer-to-
Business; Business-
to Business;
consumer-to-
consumer. Loans can
be solicited for a
business, education
or consumer project.
Consumers-to-
Businesses;
Business-to-
business; Consumer-
to-consumer (only if
loan application for
educational project)
Consumer-to-
businesses;
Businesses-to-
business. Funds must
be collected for
funding entities or
their projects and
activities.
Authorisation
Authorisation and
registration with
CNMV after
mandatory and
binding opinion from
Bank of Spain.
Registration with
ORIAS (association
in charge of a single
register of finance
intermediaries). The
ORIAS has to check
if the platform
responds to the legal
requirement
(knowledge and
competence, duty
and professional
indemnity
insurance). Checks
are carried out on a
declarative basis.
Platforms
regulated
by the ACPR and
supervised by the
DGCCRF for
consumer protection
purposes. No ex-ante
authorisation
required.
Authorisation by
FCA. Platforms may
also need other
permissions,
depending upon the
activities they
undertake
The same applies as
for investment-based
crowdfunding
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Spain
France
UK
Portugal
Money handling
Platforms might only
receive funds on
behalf of investors or
borrowers if they do
have the purpose of
payment and the
platform has been
granted an
authorization as
hybrid payment
institution. They
should segregate
their own funds and
their clients’ funds
into separate
accounts.
Platforms may
provide payment
services and, when
doing so, must
follow the specific
rules applying to
their other status
allowing for such a
service (credit
institution, payment
institution, electronic
money institution…)
Where firms are
responsible for client
money, they are
subject to rules in the
FCA Client Assets
Sourcebook (CASS),
especially the client
money rules (CASS
7), which ensure
adequate protection
of client money.
The same applies as
for investment-based
crowdfunding.
Minimum
capital
requirements
€60,000 (share
capital), or a
professional liability
insurance or a
combination of both.
If funds that are
raised exceed €2
million, equity will
amount to €120,000
(and increased in
proportion to the
funds raised, up to
€2 million).
None (but have to
take professional
indemnity
insurance).
€50,000 or a
percentage of loaned
funds – whichever is
higher
The same applies as
for investment-based
crowdfunding.
Type of loans
Fixed or variable rate
loan; profit
participating loans;
senior and
subordinated loans;
unsecured and
secured loans (but
projects shall not be
secured by a
mortgage on the
borrower´s main
residence.
Furthermore,
promotors that
qualify as consumers
according to the
general consumer
protection laws may
not apply for a
mortgage-backed
loan).
Loan cannot exceed
1 M€, with a fixed
rate and a maximum
duration of 7 years.
Only natural persons
are allowed to lend
on an IFP platform,
with a maximal
amount of 1,000 €
per project.
All types of loans,
including secured
and unsecured loans,
loans to businesses
and loans to
consumers.
Loans whereby the
interest rate is
determined on the
subscription.
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Spain
Platforms must have
effective
mechanisms in place
that ensure that, in
the event of
cessation of activity,
essential services are
provided to those
projects that had
successfully obtained
funding.
France
UK
Portugal
Business
continuity
requirements
IFP must define and
organize any
arrangements to
ensure business
continuity, including
in the event of the
failure of the
platform.
Continuity
arrangements need to
be in place so
existing loans can be
administered even in
the event of a firm
running a platform
failing.
Platform's
organisational duty
to draft, publish
online and enforce
policies and
procedures in order
to ensure business
continuity.
As of 6 April 2016:
firms providing
personal
recommendations to
invest in P2P
agreements will be
providing a regulated
activity).
No appropriateness
test for lending-
based crowdfunding
Platforms are also
subject to anti-
money laundering
rules. Neither
appropriateness nor
suitability test is
foreseen.
Platforms must
establish, implement
and maintain
adequate policies and
procedures sufficient
to ensure compliance
of the firm including
it managers,
employees and
appointed
representatives (or
where applicable,
tied agents) with its
obligations under the
regulatory system
and for countering
the risk that the firm
might be used to
further financial
crime.
KYC rules
(suitability or
appropriateness;
AML checks)
Platforms must
assess the experience
and knowledge of its
clients and verify
that they can take
their own investment
decisions and
understand and
prioritize
information risks.
The same applies as
for investment-based
crowdfunding.
Size of loans
€2 million per
project, per platform,
in a given year. €5
million, if the offer is
limited to accredited
investors
€1 million per year
per project (duration
up to 7 years).
No maximum
The same applies as
for investment-based
crowdfunding.
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Spain
Non -accredited
investors: €3,000 per
project and €10,000
max a year.
France
UK
Portugal
Maximum
investable
amounts
Accredited investors:
no limit. Accredited
investors are (i)
Institutional
investors; (ii)
Companies with €1
million of assets, €2
million of annual
turnover or €300,000
of equity; (iii)
Individuals with
€50,000 of annual
income or €100,000
of financial assets.
Lender can finance
up to €1,000 per
project if financing is
in the form of a loan
with interest and up
to €4,000 per project
for an interest free
loan.
No maximum
The same applies as
for investment-based
crowdfunding.
Disclosure to
investors by
borrower
Description of
project seeking
funding and
borrowers’ main
features.
Disclosure
requirements
imposed on the
platform.
Where creditor does
not lend in the course
of business and
borrowers are
consumers: platform
must provide
adequate pre-
contractual
explanation to the
borrower. In
addition, all
communications by
the platform must
meet FCA
requirements to be
clear, fair and not
misleading.
Where the creditor
lends in the course of
business the full
protections required
by the Credit
Consumer Act and
FCA rules apply.
The same applies as
for investment-based
crowdfunding.
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Spain
France
UK
Information on the
platform and its
services, including:
contact details, a
statement that the
firm is authorised,
details of what
performance reports
the client can expect,
and the firm’s
conflicts of interest
policy.
General description
of the nature and
risks of a product, in
sufficient detail so
the client can take
investment decisions
on an informed basis.
Platform must send a
statement at least
once a year of the
investments and
client money held by
the firm for the
client.
Portugal
Information
requirements &
risk warnings by
platforms
Information on the
platform itself,
(especially on how
the projects are
selected) and on the
loan. General
warnings on risks to
non-accredited
investors.
Warn the lender
about the risks an
provide to lenders:
with tools to assess
the possible loan
amount they can
afford given their
income and
expenses; the
relevant elements
enabling them to
assess the economic
viability of the
project, in particular
the business plan.
The same applies as
for investment-based
crowdfunding.
No obligation on
what due diligence
procedures must be
followed.
Platforms must
disclose the nature of
their service and
appropriate
information about it.
Disclose sufficient
information about
the nature of service
so investors
understand what due
diligence is
undertaken and the
need to conduct
additional due
diligence of their
own before
investing.
Due diligence
Platform shall verify
that the information
about the project
required under the
law to be disclosed
to investors is
complete.
Platforms must
perform due
diligence in selecting
the projects and
disclose the pre-
determined criteria
used in the selection
process.
N/A
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Spain
Platform to publish a
policy on conflict of
interests; Platform's
directors, managers,
employees to avoid
conflict of interests;
Shareholders of
platforms cannot
provide advice on
projects. Platform, ,
directors, managers
and significant
shareholders can
invest in a project
(max. 10%) and can
act as an issuer (max.
10% of funds raised
through the platform)
France
UK
Platforms to identify
possible conflicts of
interest that may
entail a material risk
of damage to the
interests, to keep a
record of these
possible conflicts
and take all
reasonable steps to
avoid the conflict
leading to loss for
clients. Where the
risk cannot be
managed, it should
be disclosed to
clients.
Portugal
Conflict of
interest
-
The same applies as
for investment-based
crowdfunding.
Professional
requirements
Recognised
knowledge,
experience and
professional repute
of directors and
managers
Good repute and
professional
qualifications /
experience.
Platforms to have
appropriate resources
employ people who
are competent, fit
and proper for their
role, and to have a
suitable business
model. The
employees
controlling the
business must have
honesty, integrity
and good reputation.
They must be
financially sound and
have appropriate
competence and
capability for their
role.
The same applies as
for investment-based
crowdfunding.
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