Since its inception, the European Crowdfunding Service Providers Regulation (ECSPR) has aimed to create a harmonized legal framework for crowdfunding platforms across the European Union, prioritizing transparency and consumer protection. However, several challenges remain in its implementation.
The Evolution of ECSPR
The European Commission proposed ECSPR in 2018, estimating that several hundred crowdfunding platforms operated across the Union. Following a comprehensive legislative process, including input from the European Parliament and Council, the regulation was signed into law at the end of 2020. It became effective in November 2021, with a transition period for platforms operating under national laws until November 2022.
Due to significant delays in the national implementation of ECSPR by member states, the transition deadline was extended to November 2023. As of April 2023, only 29 licensed Crowdfunding Service Providers (CSPs) were listed by the European Securities and Markets Authority (ESMA)—with one license double-counted.
The question remains: are the involved actors, including platforms and national authorities, adequately equipped to handle the transition and ongoing compliance? EUROCROWD’s ECSPR Professional Group has been actively engaging stakeholders in addressing these challenges.
Transparency and Consumer Protection
To evaluate the sector’s implementation of ECSPR, EUROCROWD conducted a review of 27 CSP websites in April 2023. The assessment focused on transparency and consumer protection, two foundational pillars of ECSPR. Using specific criteria derived from the regulation, we identified 14 key data points related to information disclosure. The aim was to understand how CSPs communicate compliance with ECSPR to their users—both investors and project owners.
Key Findings:
- Universal Compliance (1 Data Point): All 27 CSPs disclosed their business name and address, meeting a basic legal requirement.
- High Compliance: 25 CSPs stated they were licensed under ECSPR, with 20 specifying licenses for tradeable securities and 17 for loans.
- Low Compliance:
- Only 1 CSP disclosed having a continuity plan addressing risks associated with platform failure.
- Only 1 CSP clearly differentiated offerings under ECSPR from those under other licenses, despite ESMA’s explicit guidance.
- Average Compliance: CSPs provided information for an average of 18.6 data points out of 27, with a median of 20.5 data points.
These findings suggest that while platforms meet some baseline requirements, critical aspects of transparency and consumer protection—such as continuity plans and clear distinctions between licenses—are often neglected.
Implications
The lack of robust disclosures is concerning, especially as additional regulations such as the Digital Operational Resilience Act (DORA) (Regulation (EU) 2022/2554) will introduce stricter operational requirements by January 2025. CSPs must proactively address these gaps to mitigate risks and build user trust.
Additionally, the requirement for CSPs to fully comply with their ECSPR licensing plans within one year of issuance raises questions about enforcement. Will national authorities and ESMA take corrective actions against non-compliance, or even withdraw licenses?
Looking Ahead
The findings underscore the need for improved adherence to ECSPR’s transparency and consumer protection mandates. EUROCROWD will continue monitoring these developments and engaging with stakeholders to support effective implementation.
