On the 8th of December, the European Parliament, the Council and the Commission have agreed on an updated prospectus regulation for issuers of securities. The reform was proposed by the Commission on 30 November 2015 as part of its Capital Markets Union Action Plan in order to improve access to finance for companies and simplify information for investors. In 2016 it has been discussed in both the European Council and the European Parliament. The European Crowdfunding Network and its members have been continuously sought dialogue with all involved parties in order to clarify the hurdles the existing rules create for a thriving early stage investment market across Europe and the role crowdfunding can play.
The new rules will be voted on in early 2017 and will then take up to two years to be adopted in the 28 Member States. In summary, the important aspects for crowdfunding are:
The smallest capital raisings and crowdfunding projects up to €1 million will not need to issue a prospectus at all.
The EU prospectus will only be mandatory from € 8 million in capital raised, from previously €5 million.
For offerings between the two thresholds, issuers can raise capital according to local market rules issued by growth markets.
Cross border fundraising will be enabled via the EU growth prospectus for SMEs admitted to an SME Growth market or small issuances by non-listed companies.
The prospectus is an investor focused document that enables access to formal capital markets for private companies, but it is generally costly and burdensome to produce, especially for Small and Medium Sized Enterprises (SMEs). Under the Directive, issuers, offerors or persons asking for the admission to trading on a regulated market can use a “passport” for their prospectuses for cross-border offers and listings without further approval procedures in other Member States. For retail investors, the prospectus document does not provide adequate information and clarification about its application in crowdfunding are important.
ECN has worked to provide conclusive arguments for three main points within this discussion with the aim at achieving a minimum level of harmonisation for SME fundraising.
Our focus was on the lower threshold, the upper threshold and aspects of cross border investment and marketing. ECN welcomes the agreement between the negotiating parties and believes the found compromise to be a positive signal for SMEs across Europe.
The new EU prospectus rules will exempt the smallest capital raisings from the burden of producing a lengthy and expensive prospectus. Start-ups and SMEs can now raise up to €1 million without a prospectus. The upper threshold will be increased from €5m to €8m, with Member States being able to apply any range between the lower and the upper threshold. For SMEs, a new and light EU growth prospectus will be created to be used on so called Growth Markets, formal trading venues operating under specific regulation such as future SME growth markets introduced by MiFID II, allowing cross border fundraising.
This modification has been called for since a long time by many market players. Italy’s economy, just like most other European economies, is largely based on SMEs. Equity crowdfunding has long been touted as a use