Background
Regulation (EU) 2020/1503 of 7 October 2020 on the European crowdfunding service providers for business (the “Crowdfunding Regulation”), shall apply from 10 November 2021. The Crowdfunding Regulation aims to establish a brand new and safe legal framework for the crowdfunding activity across the European Union by, inter alia;
establishing the need of an authorisation for crowdfunding service providers;
establishing the possibility for crowdfunding service providers to offer crowdfunding services under the European passport mechanism; and
introducing investor protection measures.
The Crowdfunding Regulation will apply to lending-based crowdfunding (the so-called peer-to-peer lending), and investment-based crowdfunding, (where individuals invest in unlisted shares (or debt securities) issued by businesses).
ESMA’s Q&A on the Crowdfunding Regulation
On 25 February 2021, ESMA published Questions and Answers (“Q&A”) on the Crowdfunding Regulation. So far these Q&A only focus on the use of a special purpose vehicle for the provision of crowdfunding services where an “SPV” is defined in the regulation as an entity created solely for, or which solely serves the purpose of, a securitisation within the meaning of point (2) of Article 1 of Regulation (EU) 1075/2013 of the European Central Bank.
Noting that the purpose of the Crowdfunding Regulation is to facilitate direct investment and to avoid creating regulatory arbitrage opportunities for financial intermediaries, the use of legal structures, including any SPV, that interpose between the crowdfunding project and investors should therefore be strictly regulated. According to the Crowdfunding Regulation, the use of an SPV should be permitted only where it is strictly necessary in order to enable investors to acquire an interest in, e.g., an illiquid or indivisible asset through issuance of transferable securities by the relevant SPV.
The Q&A provides clarity on the following topics regarding the use of SPVs:
the circumstances and conditions in which an SPV can be created for the provision of crowdfunding services;
the types of instruments that can be offered to investors via an SPV;
whether an SPV can give exposure to more than one underlying asset;
the type of underlying asset an SPV can give exposure to; and
when an asset should be deemed to be illiquid or indivisible within the meaning of the Crowdfunding Regulation.
ESMA’s Consultation on the Crowdfunding Regulation
This Q&A is only one part of ESMA’s role in progressing the legal and regulatory framework for crowdfunding. On 26 February 2021, ESMA launched a consultation on the draft technical standards under the Crowdfunding Regulation, which seeks input on the following issues:
complaint handling;
conflicts of interest;
business continuity plan;
application for authorisation;
information to client on default rate of projects;
entry knowledge test and simulation of the ability to bear loss;
key investment information sheet;
reporting by crowdfunding service providers to national competent authorities (“NCAs”) (and NCAs to ESMA); and
publication of national provisions concerning marketing requirements.
As the Crowdfunding Regulation will only be applicable from 10 November 2021 onwards, it is fair to expect that, by then, market participants in the EU will be able to benefit from a robust regulatory framework for crowdfunding.