Extending the Transitional Period Referred to in Regulation (EU) 2020/1503
On 21 October 2022 and having regard to Regulation (EU) 2020/1503 (“Crowdfunding Regulation”) on European crowdfunding service providers (“CSPs”) for business, the Commission Delegated Regulation (EU) 2022/1988 of 12 July 2022, extending the transitional period referred to in the Crowdfunding Regulation (“Transition Period Extending Regulation”) was published.
Article 48(1) of the Crowdfunding Regulation, which amended Regulation (EU) 2017/1129 and Directive (EU) 2019/1937, provided CSPs with a transitional period until 10 November 2022, during which they could continue to provide their services pursuant to applicable national law instead of the Crowdfunding Regulation.
Article 48(3) of the Crowdfunding Regulation placed an obligation on the European Commission to make an assessment (after consulting with ESMA) on the application of the Crowdfunding Regulation and to monitor its impact on the development of national crowdfunding markets and on access to finance. Article 48(3) provided that the Commission, based on that assessment, may extend the transitional period once, for a period of 12 months.
The Commission undertook the relevant assessment: following receipt of technical advice prepared by ESMA on 19 May 2022, and cognisant that certain competent authorities may be unable to complete authorisation procedures for CSPs by 10 November 2022, the Commission concluded that an extension of the transition period is necessary to “avoid disruptions in large national crowdfunding markets”.
Article 1 of the Transitional Period Extending Regulation states that the extension period is now until 10 November 2023.
CSSF press release 22/27
On 25 November 2022, the Commission de Surveillance du Secteur Financier (“CSSF”) published press release 22/27 drawing CSPs’ attention to the Transitional Period Extension Regulation and confirmed that pursuant to the regulation, CSPs operating under Luxembourg law who have not received authorisation may continue to provide services until 10 November 2023 at the latest. The CSSF took the opportunity to clarify that this extension does not apply to legal persons who were not providing crowdfunding services prior to 10 November 2021; such legal persons must be duly authorised by the CSSF before providing any crowdfunding services. The CSSF, in the same press release, drew the public’s attention to the Commission’s publication of a number of crowdfunding delegated and implementing regulations on 8 November 2022.
Publication of delegated and implementing regulations
On 8 November 2022, the European Commission, having regard to the Crowdfunding Regulation and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 published four Commission Implementing Regulations: (EU) 2020/2120, (EU) 2020/2121, (EU) 2020/2122 and (EU) 2020/2123, and nine Commission Delegated Regulations: (EU) 2020/2111, (EU) 2020/2112, (EU) 2020/2113, (EU) 2020/2114, (EU) 2020/2115, (EU) 2020/2116, (EU) 2020/2117, (EU) 2020/2118 and (EU) 2020/21119, all dated 13 July 2022 (the “Implementing Regulations” and the “Delegated Regulations”).
The Delegated Regulations provide the following clarification in respect of the relationships between CSPs and their clients:
- pursuant to Article 8(3) of the Crowdfunding Regulation, CSPs are required to put in place internal rules depicting steps to prevent, identify and manage conflict of interest. The Delegated Regulations now place a requirement to review the internal rules on a periodic basis, at least on an annual basis, to ensure any deficiencies are addressed appropriately;
- guidelines on the information that should be requested, and the level of reliance on such information, as part of the entry knowledge test for prospective non-sophisticated investors, pursuant to Article 21(3) of the Crowdfunding Regulation;
- the methodology that should be used by CSPs when calculating the actual and expected default rates of loans offered to their clients on the crowdfunding platform, by risk categories, assigned by the CSPs;
- a detailed description of the regulatory technical standards and a template of the key investment information sheet model;
- guidelines on the CSPs’ complaint handling procedure, along with a standard template, which shall be published in each of the languages of the key investment information sheet, pursuant to Articles 23 and 24 of the Crowdfunding Regulation;
- an outline of the elements to be included in the description of the method used to assess credit risk and an overview of the policies, procedures and organisational arrangement required with regard to contingency funds; and
- provisions for a uniformed minimum content of the business continuity plan to ensure the continuity of the provision of critical services and sound administrative agreements.
The Implementing Regulations set out the following provisions relating to the relationship between CSPs and the competent authorities:
- details of the uniformed application process, including a template of the application for authorisation as a CSP;
- guidelines governing the reporting of information to competent authorities and the exchange of such information between the competent authorities, such as the Commission and ESMA, for investigation, supervision and enforcement procedures; and
- an outline of the process, including the provision of standard forms and templates for the notification on national marketing requirements applicable to CSPs by the competent authorities to ESMA.
The Delegated Regulations and the Implementing Regulations entered into force on 28 November 2022.
New ESMA Q&As
On 16 December 2022, ESMA updated its Questions and Answers ("Q&As") in relation to the Crowdfunding Regulation.
In this latest update, ESMA has provided clarity on the exemptions from the scope of the Crowdfunding Regulation pursuant to Article 1(2) of that regulation. ESMA has also responded to various questions regarding investor protection and marketing communications, in particular regarding (i) when the key investment information sheet ("KIIS") needs to be made available to prospective investors, (ii) whether the project owner is responsible for the translation of the KIIS content and (iii) whether the marketing efforts of a CSP can focus on a specific project or a specific category of projects.
Finally, as regards authorisation and supervision of a CSP, ESMA confirmed that the Crowdfunding Regulation does not preclude a national competent authority (the “NCA”) from authorising a legal entity with a management body composed of a single member, as a CSP, provided that the applicant has demonstrated that it is capable of providing effective and prudent management. In the event of a change in circumstances, the NCA as part of its on-going assessment of the CSP, may request the appointment of additional members to the management body of the authorised CSP. ESMA confirmed that a CSP can operate under different trading names so long as this would not have the potential to create confusion and subject to the requirement that all trading names must be communicated to the NCA.