Insights on the ECSPR licensing process
In July 2022 EUROCROWD carried out a survey about the authorisation process according to ECSP, to assess the overall status of how our members are proceeding after the European Commission’s announcement to extend the transitional period for crowdfunding services provided in accordance with national law until November 2023.
Answers to the survey came from both EU and non-EU platforms, covering larger and smaller economies alike. The majority of respondents operate with a national crowdfunding license, while the absolute majority of these had already started the authorisation process for a license under ECSP. The rest of the respondents intended to start shortly.
National Competent Authorities have largely started to communicate common criteria and expectations on the authorisation process. Respondents highlighted some of these:
• Compliance: specifically around organisational capability, internal processes and procedures as well as IT and technology information requests have been made by NCA.
• Home state: when seeking authorisation in another member state then their current location, respondents indicated that some NCA had requested at least three employees residing in the member state where the ECSPR was sought.
• MiFiD: information already submitted with an existing MiFiD license does not need to be submitted again unless an update is necessary, as per the respondents.
• Transition: In many, but not all member states the NCA has created a streamlined procedure for re-authorization under the ECSPR of providers already authorised under national law.
At a recent CrowdTuesday, 21 September 2022, Frankfurt, co-organised with Dentons, participating NCA, especially the Austrian FMA stressed the need for a well prepared application and time for the licensing process. They suggested that licensing in realistic terms will not be achieved in three months, but that platforms should be prepared to answer questions and resubmit information. The length will depend on the quality of the documentation and the ability of platforms to satisfy information requests. ESMA stressed that the market will benefit from a quick uptake of ECSPR, in order to reduce the confusion between different regimes. The expressed hope was that the market could transition rather sooner than later. ESMA is also publishing further Q&A on ECSPR these days.
Additionally, during the whole licensing process, platforms will need to have enough resources to cover expenses. Participants in 7th CrowdCamp, 17 & 18 June 2022, Bilbao also raised this issue. For the license application, some NCA charge fees, others not. Additional legal and other fees are largely expected to spread from EUR 15,000 to more than EUR 50,000. Insights from CrowdCamp suggest, however, that if indirect cost are also included, the figure might be significantly higher. In order to manage some of the cost arising with the licensing and new market opportunities, some 80% of respondents indicated they plan a fund-raising round for their business on their own platform before obtaining the ECSP license.
Based on the respondents experience major constraints that face with the authorisation process include language and translation of documents, need for a qualified lawyer, the unpredictability of the process, the adaptation of the platform, having enough resources for the whole process, and the varying national implementation laws. Other concerns mentioned included information about seeking to license in another member state and the adaption of internal controls regarding information disclosure to customers.
With regard to the investor entry test, almost all respondents signalled they were not buying this service from a third party. More than two-thirds of respondents also indicated they had not found an indemnity insurance provider for prudential safeguards. Our 11th CrowdCon on 8 & 9 November 2022 will provide a workshop on this topic as well as on licensing regimes across the EU.
Thank you to all the participants for taking the time to complete the questionnaire.