On 27 March 2014 the European Commission for the first time issued an official communication on the potential of crowdfunding, titeled “Unleashing the potential of Crowdfunding in the European Union” and a related PR. The main features of the communication are a very positive and open understanding of the potential crowdfunding can have on the European economy. The balanced view on opportunities and risks, as well as the implied recommendations toward industry and stakeholders are a most welcome statement that will help to further the public understanding of crowdfunding. The European Commission also has announced a number steps it will endeavor to take by 2015, these are:
- carry out a study to explore market developments and the potential of crowdfunding to finance research and innovation
- raise awareness, provide information and training modules for project owners, especially for financial return crowdfunding (crowd lending and crowd investing)
- encourage exchange of industry best practices and standards, and facilitate the development of a European ‘quality label’ to build trust with users
- establish an expert group, called the European Crowdfunding Stakeholder Forum, that will advise the Commission on some of the above actions
- assess the possibilities for using public funds to support projects through crowdfunding
- hold regulatory workshops with national regulators to discuss obstacles to convergence of national regulations on financial return models and, where relevant, issuing recommendations to encourage Member States to avoid inconsistencies in national approaches
- closely monitor the market and legal developments and regularly assess whether further EU action is needed.
Since 2012 the European Crowdfunding Network has been at the forefront of the policy discourse on Crowdfunding in Europe and beyond. We have introduced all leading arguments through our Framework into the discourse in Brussels which have shaped the policy developments at European level and are fully reflected in the communication of the European Commission, including our regulatory review across the Union and our work within the Startup Europe Crowdfunding Network, an European Commission action on web-entrepreneurship initiated through our early work.
The 27 March 2014 communication is fully in line with our previously announced expectations and requests to the European Commission. We understand that the European Commission has taken a significant step in making such a bold stand at a time where uncertainty on the impact of crowdfunding still remains very high. To link the communication on Crowdfunding to the Communication on long-term financing of the European economy has clearly positioned the discussion on crowdfunding with financial services and access to finance for small and medium sized enterprises.
The European Crowdfunding Network fully supports and welcomes the communication as well as its intentions and believes that it will be an important step in the development of an adequate framework for crowdfunding that aligns with existing funding instruments. We remain concerned about the timely and adequate implementation of the proposed actions and the continuing fragmentation of what should become a single European market, but the European Crowdfunding Network will continue to be at the service of European and national policy makers and regulators in order to facilitate an open and professional discourse.
With regard to direct actions and changes to regulation, the European Commission already in November announced that there will be no additional regulation of crowdfunding on European level for now. This is good news as it will allow the industry to further establish itself and to form best practices, something we have encouraged and demanded from the crowdfunding sector also since 2012 and will continue to pro-actively work on developing. But the lacking focus on regulation is also bad news as it will allow for further national regulations to be drawn up which might not be compatible with each other.
In this respect, the current development in the UK and Spain, where significant hurdles for market entry and customer protection are expected, we may anticipate a reduction in crowdfunding innovation in the worst case. In France, where the proposed regulation so far looks more promising despite some hurdles, we are opportunistic that a more vibrant crowdfunding sector can still develop. In this context arrives the European Commission’s statement providing hope for a significant impact on national regulators and policy makers in order to limit further fragmentation of the single market. This indeed, might be one of the most important signs the European Commission can set right now.
The actions are clearly going to raise the awareness of crowdfunding to entrepreneurs, investors, other stakeholders and the general public; they will help the crowdfunding industry to create best practices with the aim of self regulation and customer protection as well as offer intensified support for research to increase available data on the sector and its impact on the European economy. The European Commission has now beyond all doubt taken a leading role with national regulators and Governments in order to increase awareness of crowdfunding in order to create public support on national level and will help to further the understanding of existing European and national regulation with respect to crowdfunding with the aim to potentially regulate aspects of the sector on European level.
In detail, the European Commission has to date already acted on the following of our long-standing suggestions:
- Update the laws to allow small and medium businesses the opportunity to raise capital through their own personal networks to ensure their autonomy and job-creating capabilities. (No European action. Relevant changes have occurred or are incurring with the input from the European Crowdfunding Network in Austria, Italy, France and the UK)
- Oversee the creation of Expert Groups on Crowdfunding, tasked with the collection and exchange of ideas on how best to support crowdfunding on European, national and regional level. (Now announced)
- The European Commission may consider an Expert Group on Crowdfunding joining multiple Directorates Generals, building on the success around their work on Social Businesses. (This has been formed at the European Commission in Summer 2013)
- Create a business case for crowdfunding in Europe, build awareness for SMEs on how to utilise crowdfunding and create guidance for best practices for crowdfunding platforms, entrepreneurs, and funders (The communication will play a vital role here, priot the European Commission had already issued small amounts of grant funding to relevant activities)
- Coordinate and relax the rules in company laws under which entry-level company regimes can offer and assign shares to new investors, thereby abolishing formal procedures that do not fit the information age. (No European action)
- Provide any type of support to platform managers in view of helping them sustain their activities just like they provide support to any intermediary organizations offering services to entrepreneurs and enterprises. (No European action)
- Signpost crowdfunding platforms to innovators, entrepreneurs, artists and any project promoters (the European Commission has already issued small amounts of grant funding to relevant activities under its Startup Europe, H2020 and FI PPP programme)
- Raise awareness of potential investors, donors, lenders about the opportunities offered by crowdfunding platforms (The communication will help to foster this, the European Commission had already issued small amounts of grant funding to relevant activities)
- Utilise a range of different strategies and approaches to encourage SMEs and entrepreneurs to utilise crowdfunding (the European Commission has already issued small amounts of grant funding to relevant activities under its Startup Europe, H2020 and FI PPP programmes)
- Fund academic and market studies addressing the impact of crowdfunding on the economy (The communication puts forward at least two major studies on crowdfunding, the European Commission previously had already issued small amounts of grant funding to relevant activities and more are announced)
- Initiate and fund studies on pan-European, national, regional, and local communities; ways SMEs can utilise crowdfunding; the success or otherwise of different policies and techniques that can increase the use of crowdfunding in Europe (the European Commission has already issued small amounts of grant funding to relevant activities)
- Provide resources and funding to a representative body of the European crowdfunding industry (such as the European Crowdfunding Network or a similar organization). (No direct European action)