The European Crowdfunding Network is happy to see the European Banking Authorities detailed opinion on Lending Based Crowdfunding. We support the call for clarification from the European Commission with regard to the application of existing EU laws to lending based crowdfunding and fully support the view that it should not fall under existing rules requiring a banking license. Over the past year, the European Crowdfunding Network and its members have proactively engaged with the European Banking Authorties in order to create a better understanding of the sector, we believe that the result is a positive step in clarifying the legal framework for lending based crowdfunding and thus a step toward a pan-European crowdfunding market.
One of the main tasks of the European Banking Authority (EBA) is to monitor new and innovative forms of financial activities, in order to determine the risks to participants in the market . For this reason the EBA launched a study on the emerging marker of peer-to-peer lending and presented its outcome in an Opinion Letter, published at the end of February and addressed to the European Commission, the European Parliament and the EU Council.
The EBA looked into lending-based crowdfunding across the EU and identified a series of risks and evaluated how they can be addressed in the EU legislative framework. According to the Authority, convergence for the supervision practices of crowdfunding across the EU is desirable not only to avoid regulatory arbitrage, but also to ensure a level-playing field for all participants across the EU Single Market. The EBA explained that in these early stages of the development of crowdfunding, regulatory convergence should be based on existing EU law, and recommended that EU legislators clarify its applicability.
In particular, the study identified a series of risks and respective drivers and tried to understand whether they could be addressed by existing EU laws and directives. The only EU Directive that the EBA indicated as “the most readily applicable EU legislative text to lending-based crowdfunding” is the Payment Services Directive (Directive 2007/64/EC), which can cover payment-related aspects of crowdfunding activities. All the other EU Directives that the EBA considered as potentially applicable to peer-to-peer lending, eventually turned out not to be relevant (yet). One of the main reasons is that, according to the EBA, lending based crowdfunding falls outside the definition of credit institution. Therefore many relevant European Directives in the field cannot be applied. However, should the market evolve to the direct participation of credit institutions in providing loans through lending-based crowdfunding (as some indications already suggest), this would probably change.
Many risks -such as risk of fraud, lack of transparency, risk of platform’s default – inherent to lending based crowdfunding remain still uncovered. EBA suggests that, in order to achieve a coordinated approach to crowdfunding across the single market, one way forward for EU legislator is to communicate how existing EU law should be applied to lending-based crowdfunding, and, at the same time, to provide indications on how the risks that remain still uncovered could be addressed.
The Opinion Letter on crowdfunding of the EBA follows the one of ESMA of late December 2014. Both Authorities believe that this market should develop at European level, as this way it could have the biggest impact on access to finance for European SMEs.
You can read the full EBA’s Opinion Letter here.