The EU will have harmonised rules that make it easier for crowdfunding platforms to provide their services cross-border. The aim is to diversify opportunities for businesses to raise funding, expand the range of options available to investors and create clear rules for investor protection.
The Council of the European Union and the European Parliament reached a preliminary agreement on the rules for crowdfunding. Finland, as the country holding the Presidency of the Council, held trilogue negotiations with the European Parliament the European Commission.
Following finalisation of technical work, the deal will be submitted for endorsement by the Permanent Representatives Committee.
Crowdfunding is an emerging alternative form of financing that connects, typically via the Internet, those who can give, lend or invest money directly with those who need financing for a specific project. For start-ups and other SMEs, bank lending is often expensive or difficult to access due to the lack of credit history or a lack of tangible collateral. Crowdfunding can be a useful substitute funding source, in particular in the early stages of business.
The new rules as agreed by the Presidency and the Parliament will cover crowdfunding campaigns of up to EUR 5 million over a 12-month period. Larger operations will be regulated by MiFID and the prospectus regulation. Reward- and donation-based crowdfunding fall outside the scope of the proposal.
The agreed rules provide a high level of investor protection, whilst taking into account compliance cost for providers. The text sets outs common prudential, information and transparency requirements. It also includes specific requirements for non-sophisticated investors. At the same time, the rules for EU crowdfunding businesses will be tailored depending on whether they provide their funding in the form of a loan or an investment (through shares and bonds issued by the company that raises funds).
The framework defines common authorisation and supervision rules for national competent authorities. 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.