The new framework is part of the Capital Markets Union Action Plan which aims at providing an easier access to new financing sources. It will remove barriers for crowdfunding platforms to provide their services cross-border by harmonising the minimum requirements when operating in their home market and other EU countries. It will also increase legal certainty through common investor protection and consumer protection rules.
The new rules raise the former threshold of EUR 1 million of the Prospectus Regulation to EUR 5 million, which means that companies raising funds from the crowd up to this limit do not have to submit a prospectus for approval to the National Competent Authorities. Larger operations will still be subject to approval. Reward- and donation-based crowdfunding fall outside the rules’ scope since they cannot be regarded as financial services.
The operation of the crowdfunding platforms is authorized and supervised by the National Competent Authorities, in line with the provisions of the ECSP. To enable crowdfunding service providers to operate cross-border without facing divergent rules and to thereby facilitate the funding of projects across the Union by investors from different Member States, Member States should not be allowed to impose additional requirements on those crowdfunding service providers that are authorised under the ECSP. The European Securities and Markets Authority (ESMA) will have an enhanced role to facilitate coordination and cooperation, through a binding dispute mediation mechanism and the development of technical standards.
The adopted rules provide a high level of investor protection, whilst taking into account compliance cost for providers: they set out common prudential, information and transparency requirements.
Crowdfunding service providers shall provide prospective investors with a key investment information sheet drawn up by the campaign initiator and approved by the platform for each crowdfunding offer. The Key Investment Information Sheet specifies the most important information on the campaign initiator and the funding details, the main risk factors, fees as well as investor rights attached to the securities.
The Regulation distinguishes between sophisticated and non-sophisticated investors, and introduces different levels of investor protection safeguards appropriate for each of those categories. The distinction between sophisticated and non-sophisticated investors should build on the distinction between professional clients and retail clients established in MiFID and should also consider the prospective crowd investors’ experience in and knowledge of crowdfunding, which should be re-assessed every two years.
Therefore, crowdfunding service providers shall, before giving prospective non-sophisticated investors full access to invest in crowdfunding projects on their crowdfunding platform, assess by an entry knowledge test whether and which crowdfunding services offered are appropriate for them, as well as require prospective non-sophisticated investors to simulate their ability to bear loss. Prospective non-sophisticated investors shall not be prevented from investing in crowdfunding projects, irrespective of the results. However, the non-sophisticated investors shall acknowledge that they understand the investment and its risks.
The crowdfunding service provider shall provide for a pre-contractual reflection period, during which the non-sophisticated investor may, at any time, revoke his or her offer to invest or expression of interest in the crowdfunding offer without giving a reason and without incurring a penalty. The reflection period shall start at the moment of the offer to invest or the expression of interest by the prospective non-sophisticated investor, and shall expire after four calendar days.
Formally, the Council adopted its position at first reading. The regulation now needs to be adopted by the European Parliament at second reading before it can enter into force.