The Directorate‑General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) of the European Commission has released the final report on Identifying the market and regulatory obstacles to the cross-border development of crowdfunding in the EU. This key study was delivered by ECN in collaboration with Osborne Clarke, as well as with the support from academics from University of Brighton and University of Piraeus. The report presents the situation of cross-border European crowdfunding markets and of the regulatory landscape, and identifies potential barriers to cross-border transactions across Europe. It also sets the basis for a future decision on how to best enable crowdfunding to serve the European economy and contributes to the ongoing policy discussion on the review of the Capital Market Union action plan, under which a proposal for EU regulation of crowdfunding is expected in March 2018.
While executing the research, we looked at the divergent market and regulatory approaches to crowdfunding across the EU Member States. Oliver Gajda, Executive Director of ECN says “Based on the evidence gathered by our work, the European Crowdfunding and Peer-to-Peer finance sector remains characterised by its highly heterogeneous nature, shaped by the different starting points of nascent national markets across the EU. It shows that incumbent regulatory frameworks provide insufficient guidance for digitally mediated market exchange, such as Crowdfunding.”
In the report, we identify potential barriers to cross-border transactions that prevent securities-based and lending-based crowdfunding from scaling up across Europe. We look at the divergent regulatory approaches to crowdfunding across the EU Member States, consider microstructural features of crowdfunding that may give rise to transaction costs that are beyond the immediate reach of regulators, and analyse the implications of these features from the perspective of consumer and investor protection and the importance of appropriate disclosures and safeguards. Dr Nikos Daskalakis, Senior Lecturer of Finance at the University of Brighton adds, that based on survey results and “despite the demonstrated obstacles to cross-border crowdfunding in the EU, funders and platforms have expressed interest in engaging in cross-border financing.”
Our analysis draws on extensive desk research on state of the art, in-depth legal analysis of regulatory context in all Member States and with focus on the six most significant national contexts (France, Germany, Italy, the Netherlands, Spain, and the UK), a bespoke survey targeted at European crowdfunding platforms active in cross-border crowdfunding, an analysis of a combined European user survey, and in-depth interviews with industry executives, regulators and other experts. Matthias Klaes, ECN Senior Research Adviser and Professor of Political Economy at the University of Buckingham who was the editor of the 500+ page report, said “This renewed collaboration between Osborne Clarke and ECN is bringing expertise in digital finance to new heights by combining legal knowledge with in-depth interview-based qualitative research, which at this depth and scale is a sector first. It is rewarding to see that our analysis is helping shape policy in an area crucial for European competitiveness”
The European Commission stands at a crossroads with regard to its proposed European regulation of Crowdfunding, having to tackle the problems related to cross-border investing and to provide an effective risk management framework. “We believe that this report is yet another important tool for the European Commission. It provides direct input for a comprehensive and balanced European Crowdfunding regulation and expands beyond the detailed analysis of the current legal framework of Crowdfunding in the EU as already provided in the ECN Review of Crowdfunding Regulation 2017“, adds Tanja Aschenbeck-Florange, Partner at Osborne Clarke. “This report provides the European Commission with clear policy recommendations, based on legal and market obstacles evident in cross-border Crowdfunding.”
We would like to thank all the stakeholders of the wider crowdfunding ecosystem (investors, platforms, fundraisers, policymakers, national regulators and broader innovation ecosystem players) who have contributed to the research by taking part in surveys, interviews, focus groups and the expert panel. We would like to express special acknowledgement of the crowdfunding platforms that shared their operational insights for their open discussions. We are looking forward to the European Commission’s forthcoming legislative proposal.