On November 5th 2018, the Economic and Monetary Affairs Committee (the “Committee”) voted on the European regulation on European Crowdfunding Service Providers for Business proposed by the European Commission in March 2018.
The aim of the proposed regulation is to end the current status quo in which each European Member State regulates online capital formation pursuant to its own national rules resulting in a patchwork of compliance and mandates which in turn engender unnecessary hurdles for issuers, investors and listing platforms. The proposed regulation makes a number of proposals to help crowdfunding services to function smoothly in the internal market and facilitate cross-border business funding by creating a single uniform set of rules on the provision of crowdfunding services across Europe.
For further information on the Commission’s proposal, please see our previous article.
One notable change that the Economic and Monetary Affairs Committee adopted in its text was to expand the scope of the regulation by increasing the maximum threshold for each crowdfunding offer to EUR 8,000,000 (an eightfold increase from the level of EUR 1,000,000, proposed by the European Commission), to be calculated over a period of 12 months.
The Committee proposed amendments to provide that crowdfunding service providers should give clients clear information about financial risks and charges related to their investment, including insolvency risks and project selection criteria.
In addition, they recommend that crowdfunding service providers disclose the default rates of the projects offered on their platform every year.
The Committee proposes that crowdfunding service providers provide a standard template for complaints.
Contrary to the blanket prohibition on crowdfunding service providers investing in crowdfunding offers on their platform proposed by the European Commission, the Committee proposes that they be allowed to do so subject to such crowdfunding service providers making this information available well in advance to clients.
The Committee recommended that a prospective crowdfunding platform would need to receive authorization from the national competent authority of the member state in which it is established, rather than from the European Securities and Markets Authority, as initially proposed by the European Commission.
Negotiations with the European Commission and the Council will continue prior to the final text being voted.