If you are a crowdfunding platform, an entrepreneur, or an investor, then you should look these series of articles on the European Crowdfunding Regulation (ECSPR).
The ECSPR is a game-changer. It harmonizes rules across the EU, creating a level playing field for crowdfunding services. In these notes, we break down the jargon, demystify legal intricacies, and provide practical insights.
In the next weeks, we will talk about platforms integrity, due diligence and clear communication with investors; how authorities approve platforms, address complaints, and enforce marketing and investor protection rules; how crowdfunding investors are protected and, finally, about European Collaboration.

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First
Approbation and application of Regulation (EU) 2020/1503. Consequences on crowdfunding service providers.

Approbation & application
Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European providers of crowdfunding services for businesses (hereinafter, ECSPR) was published on 7 October 2020 and entered into force 20 days after its publication in the Official Journal of the EU (OJEU), i.e. on 9 November 2020.

Notwithstanding, ECSPR started its application, according to Article 51 of the ECSPR, one year later, i.e. on 10 November 2021.

“…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…”

However, this date may be misleading in relation to the required authorisation of crowdfunding service providers (hereinafter, CSP) to operate in the EU.

Apart from CSP that started to provide services after 10 November 2021 and whose platforms needed an authorisation in any case, ECSPR, in its article 48.1, allowed CSP already established on 10 November 2021 to continue to provide services in accordance with its applicable national regulations until 10 November 2022 or until the authorisation is granted, whichever is the earlier.

“…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…”

One-year extension
After authorising these CSP to continue providing services in accordance with their national law for one year, we might think that they were entirely adapted to ECSPR in November 2022. However, not.

In May 2022, it became clear that it would be extremely difficult in practice for platforms still providing services under their national rules to adapt to the ECSPR in November 2022. Hence, the European Commission decided to delay the entry into force of this obligation by 1 year, i.e. until 10 November 2023.

This new delay was possible according to the legal provision of the article 48.3 ECSPR:
“…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 and obligation of acting honestly, fairly and professionally
From this date, ECSPR is entirely applicable to all CSP, and lays down uniform requirements for their provision, organisation, authorisation, and supervision, as well as for transparency and marketing communications.

Indeed, one of the main aspects of ECSPR is that a CSP shall act honestly, fairly and professionally in accordance with the best interests of their clients.

“…Crowdfunding service providers shall act honestly, fairly and professionally in accordance with the best interests of their clients…”

The subsequent paragraph of the article 3 specifies a CSP shall not pay or accept any remuneration, discount, or non-monetary benefit for routing investors’ orders to a particular crowdfunding offer made on their crowdfunding platform or to a particular crowdfunding offer made on a third-party crowdfunding platform.

Under this new legal scenario, a CSP must know perfectly what “routing investors’ orders” means. Otherwise, provided that a CSP is routing investors’ orders illegally, a sanction may be imposed, even the closure of the crowdfunding platform.

ESMA interpretation
Concerning the meaning of “routing investors’ orders”, the answer was clarified by the European Securities and Markets Authority (hereinafter, ESMA).

Indeed, ESMA was asked about the interpretation of the term 'routing of orders', considering the embedded risk of conflicts of interest and the associated serious investor protection concerns associated with such practices, and to confirm if this prohibition applies broadly to any form of specifically directing prospective investors to a particular crowdfunding offer.

ESMA clarifies that 'routing of orders' does mean any form of practice to direct prospective investors to a particular offer, unless that practice is based on objective criteria that are disclosed ex ante, such as filtering or search engines.

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