Just days after the European Crowdfunding Network has published its milestone Review of Crowdfunding Regulation in 30 countries in association with major law firms, the European Securities and Markets Authority (ESMA) has published an Opinion for National Authorties along with Advice for the European Institutions on Investment-based crowdfunding (equity). The European Crowdfunding Network (ECN) has been supportive to the efforts of ESMA over the past year and has collaborated on a number of occasion in order to help ESMA to form a thorough understanding of the crowdfunding sector. ECN welcomes the communication by ESMA and hopes that it will be taken into consideration by the European Institution’s work on crowdfunding and by all European national financial services regulatory authorities and Ministries of Finance. We believe that the ESMA opinion tries to find a positive but balanced approach to an emerging and ever changing sector.
The Opinion to the national competent authorities (NCA) provides clarity on how crowdfunding business models fit within the existing EU regulatory framework. It aims to outline how existing EU rules are likely to apply to crowdfunding platforms, depending on the precise business model used. It also provides guidance as to who may be considering how to regulate platforms operating outside the scope of the harmonised EU rules on the key risks inherent to crowdfunding and the key components of a regulatory regime to address them.
ESMA Chair, Steven Maijoor, says that it is ESMA’s aim “to enable crowdfunding to reach its potential as a source of finance, while ensuring that risks to users of crowdfunding platforms are identified and addressed in a proportionate and convergent way across the EU. We believe that there are benefits both for investors as well as for platforms by operating inside rather than outside the regulated space.”
ECN supports the ESMA view on the potential of crowdfunding and the call for proportionate and convergent way framework across Europe. However, the implementation of such framework will be delicate work and in need of close and ongoing involvement of the crowdfunding sector.
The ESMA opinion to National Competent Authorities is considering the diverse business models used within investment-based crowdfunding and depending on the precise structures used different EU legislation may apply. The analysis of how the main business models map across existing EU rules, e.g., the Markets in Financial Instruments Directive (MiFID), the Prospectus Directive, the Directive for Alternative Investment Fund Managers (AIFMD) and other financial and banking regulations is aimed to help create an understanding of the possibilities within the existing framework on national level. In addition, the Opinion outlines what ESMA believes should be the key components of an appropriate regulatory regime for investment-based crowdfunding activities.
ESMA’s Advice to the EU Institutions highlights gaps and issues in the current applicable regime where action may be considered to ensure there is a regime protecting investors while also enabling crowdfunding platforms. These gaps and issues identified by ESMA include:
– the impact of the Prospects Directive thresholds;
– capital requirements and the use of the MiFID optional exemption; and
– the potential development of a specific EU crowdfunding regime, in particular for those platforms that currently operate outside of the scope of MiFID.
The Opinion and Advice have been prepared in collaboration with and input from the European Banking Authority (EBA) on the regulation that falls within its scope of action, i.e. the Payment Services Directive, and constitute the first output of a co-ordinated programme of work. The EBA is expected to comment shortly on lending-based crowdfunding.
Both, ESMA and EBA, have been presenting their overall position and concerns during the ECN Crowdfunding Convention on the 12th of December 2014 in Paris and given the European crowdfunding sector the relevant confidence of their views.