Regulation (EU) 2020/1503 of the European Parliament and of the Council, commonly referred to as the European Crowdfunding Service Providers Regulation (ECSPR), was published on October 7, 2020. It officially entered into force on November 9, 2020, just 20 days after its publication in the Official Journal of the European Union (OJEU). However, its application started a year later, on November 10, 2021, as outlined in Article 51 of the ECSPR.
“This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 10 November 2021.”
Despite the official start date of its application, the timeline for full compliance with the ECSPR has seen notable extensions, particularly concerning the authorisation of Crowdfunding Service Providers (CSPs).
Initial Transition Period for CSPs
For CSPs already operating under national regulations as of November 10, 2021, the ECSPR introduced a transitional period. Article 48(1) allowed such CSPs to continue their activities under applicable national laws until either:
- November 10, 2022, or
- The date they obtained ECSPR authorisation, whichever came first.
“Crowdfunding service providers may continue in accordance with the applicable national law to provide crowdfunding services that are included within the scope of this Regulation until 10 November 2022 or until they are granted an authorisation referred to in Article 12, whichever is sooner.”
Extension of the Transition Period
By mid-2022, it became evident that many CSPs still operating under national laws faced challenges in fully adapting to ECSPR by the original November 2022 deadline. To address these practical difficulties, the European Commission utilised the provisions of Article 48(3) to extend the transitional period by an additional 12 months.
The extension, formalised in May 2022, postponed the requirement for full compliance to November 10, 2023. This decision followed an assessment conducted by the European Commission in consultation with the European Securities and Markets Authority (ESMA):
“By 10 May 2022, the Commission shall make an assessment, after consulting ESMA, on the application of this Regulation to crowdfunding service providers that provide crowdfunding services only on a national basis and on the impact of this Regulation on the development of national crowdfunding markets and on access to finance. On the basis of that assessment, the Commission shall be empowered to adopt delegated acts in accordance with Article 44 to extend the period referred to in paragraph 1 of this Article once by a 12-month period.”
Current Legal Status of CSPs
As of November 10, 2023, all CSPs must fully comply with the ECSPR. The regulation sets uniform requirements for the provision, organisation, authorisation, supervision, transparency, and marketing communications of crowdfunding services.
One of the fundamental principles enshrined in ECSPR is the obligation for CSPs to act in the best interests of their clients. According to Article 3:
“Crowdfunding service providers shall act honestly, fairly and professionally in accordance with the best interests of their clients.”
Additionally, CSPs are prohibited from accepting any remuneration, discounts, or non-monetary benefits for directing investors to specific crowdfunding offers unless the practice is based on objective, pre-disclosed criteria (e.g., filtering or search engine functionalities).
Clarification by ESMA: What Constitutes ‘Routing of Orders’
To address concerns regarding potential conflicts of interest and investor protection risks, ESMA provided guidance on the interpretation of “routing investors’ orders.” According to ESMA, the term broadly covers any practice that directs investors to specific crowdfunding offers unless such practices are based on objective criteria disclosed in advance.
This interpretation reinforces the regulatory intent to ensure fairness and transparency in crowdfunding operations, safeguarding investors from undue influence. CSPs found violating this provision may face severe penalties, including the closure of their platforms.
Conclusion
The ECSPR represents a significant step toward creating a harmonised framework for crowdfunding in the European Union. With the regulation now fully applicable, CSPs must ensure compliance with its stringent requirements, particularly regarding transparency, investor protection, and conflict of interest management. The extended transition period provided CSPs with the necessary time to adapt, and the industry is now positioned to operate under a unified European framework designed to foster trust and growth in the crowdfunding sector
