The European Union has approved crowdfunding rules that will apply to all member states offering a pan-European approach to online capital formation removing much of the friction in the current ecosystem that suffers from regulatory fragmentation. Industry participants, along with industry associations, have long championed harmonized rules across the EU.
In a deal struck with the European Council last December pertaining to common rules for crowdfunding platforms, legislation was approved that will allow issuers the ability to raise up to €5 million during a 12 month period for the issuer. This amount is in contrast to €1 million that was previously proposed by the European Commission.
The new rules seek to help crowdfunding services to function smoothly in the internal market and to foster cross-border business funding in the EU. The rules will apply to all European Crowdfunding Service Providers (ECSP). Investors will be provided with a “key investment information sheet” (KIIS) crafted by the issuer for each crowdfunding offer or at the platform level to maintain transparency and boost investor protection.
The objective is that crowdfunding service providers must provide investors with clear information about intrinsic risks and charges they may incur, including insolvency risks and project selection criteria.
Any ECSP must receive regulatory approval from the “national competent authority” (NCA) of the member state in which they are established to list securities offerings.
ECSP’s will be able to compete across the European Union and provide cross-border crowdfunding services via a notification procedure.
Supervision will be carried out by national competition authorities and with the European Securities and Markets Authority (ESMA) coordinating cooperation between EU member states.