New EU-wide rules look set to boost crowdfunding for start-ups

With crowdfunding an increasingly popular way of raising finance for start-ups across emerging Europe, new EU-wide rules agreed by negotiators from the European Parliament and European Commission this week, designed to help crowdfunding services function smoothly and foster cross-border business funding, look set to provide a boost to the region’s tech sector.

The uniform set of criteria will apply to all European Crowdfunding Service Providers (ECSP) up to offers of five million euros, calculated over a period of 12 months per project owner, the agreed text says.

To enable small companies or start-ups to use the crowdfunding option, the shares of certain private limited liability companies, which are freely transferable on the capital markets, were included in the scope of the legislation.

The legislation will be accompanied with additional safeguards and clarification on how investors should be informed of the consequences of their choices.

“I am satisfied that we came to an agreement on the final version. I hope that, in a couple of years, investors will see this agreement as a good 2019 Christmas gift,” said the Slovakian MEP Eugen Jurzyca, the European Parliament’s rapporteur for crowdfunding regulation.

Investors will be provided with a key investment information sheet (KIIS) drawn up by the project owner for each crowdfunding offer, or at platform level. Crowdfunding service providers would need to give clients clear information about the financial risks and charges they may incur, including insolvency risks and project selection criteria.

In addition, investors identified as ‘non-sophisticated’ would be offered more in-depth advice and guidance, including on their ability to bear losses and a warning in case their investment exceeds either 1000 euros or five per cent of their net worth, followed by a reflection period of four calendar days.

A prospective ECSP would need to request authorisation from the national competent authority (NCA) of the member state in which they are established. Through a notification procedure in a member state, ECSP would also be able to provide their services cross-border. Supervision would also be carried out by NCAs with the European Securities and Markets Authority (ESMA) facilitating and coordinating cooperation between member states. ESMA’s role, and to a lesser extent that of the EBA, was strengthened in areas such as binding dispute mediation, data collection from NCAs in order to produce aggregated statistics and development of technical standards.

“This regulation will allow crowdfunding service providers to give SMEs, start-ups and innovative companies new opportunities. New projects will have better access to finance that will boost the real economy,” said Caroline Nagtegaal, a Dutch MEP and rapporteur responsible for markets in financial instruments: crowdfunding service providers.

The agreement will now have to be approved by the European Parliament’s Economic Affairs Committee and the parliament as a whole.