As highlighted in our previous publication, crowdfunding has gathered pace in recent years as an attractive alternative to traditional forms of finance typically offered by banks. The commencement of the Crowdfunding Regulation in November of last year and, in particular, its introduction of an EU passport based on a single authorisation, simplified the offering of crowdfunding services across the EU, and facilitated efficient scaling of services by crowdfunding service providers (CSPs).

As also previously highlighted, the European Supervisory Authorities currently have a strong focus on retail investor protection, stemming from the changing retail investment market. The European Banking Authority (EBA) has now expressed a concern that investors using crowdfunding platforms may be exposed to the risk of having insufficient information, and/or an incomplete understanding of the viability of a crowdfunding project or of the due diligence conducted by CSPs.

The EBA's recently published final draft regulatory technical standards in respect of CSPs (RTS) aim to:

  • address the potential information gap between CSPs and investors and to ensure that adequate information is disclosed to investors on how credit scores are calculated, and crowdfunding offers are priced
  • ensure a minimum set of common standards in terms of credit risk assessment, governance and risk management structures

The RTS set out the information that CSPs shall provide to investors on the calculation of credit scores and prices of crowdfunding offers. The RTS also set out minimum common standards with regards to information to be considered in credit risk assessment and loan valuation, and the underlying policies and governance arrangements. In particular, the RTS specify:

  • the elements that are to be included in the information to investors with respect to the description of the method to calculate credit scores of crowdfunding projects, and pricing assigned to crowdfunding offers
  • the information and factors that CSPs need to consider when carrying out a credit risk assessment and conducting a loan valuation
  • the factors that CSPs must consider when ensuring that the price of loans facilitated on its platform are fair and appropriate
  • the minimum contents and governance of the policies and procedures required for information disclosure and of the risk management framework for credit risk assessment and loan valuation

Next steps

The RTS now pass to the European Commission for consideration and adoption as a draft delegated regulation, which will then be subject to scrutiny by the European Parliament and the Council.

Whilst it is not expected that the RTS will come into force before Q3 of 2022, CSPs should factor the RTS into their horizon scanning and compliance risk frameworks.