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 Regulation1 in November 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).
Below we highlight two recent key updates to the EU crowdfunding regulatory regime:
- extension of the transitional period for CSPs already providing crowdfunding services
- adoption of Level 2 Measures by the European Commission (EC)
These developments should allow CSPs operating under national law sufficient time to adapt to the new regime under the Crowdfunding Regulation, and to suitably adjust their internal procedures before applying for authorisation under the Crowdfunding Regulation.
Extension of the transitional period
The Crowdfunding Regulation provides for a transitional period during which CSPs may, in accordance with applicable national law, continue to provide crowdfunding services within the scope of the Crowdfunding Regulation, until 10 November 2022, or until they are granted an authorization - whichever is sooner. The EC, after consulting with the European Securities and Markets Authority (ESMA), can extend this transitional period by a maximum of 12 months to 10 November 2023.
On 12 July 2022, and further to receipt of technical advice from ESMA supporting the granting of an extension to the transitional period, the EC adopted a Delegated Regulation extending the transitional period until 10 November 2023.
In deciding to extend the transitional period by the full 12 months, the EC concluded that the extension was necessary to avoid disruptions in large national crowdfunding markets. The disruption would be caused by the inability of certain national competent authorities (NCAs) to complete authorisation procedures by 10 November 2022, and of CSPs operating under national law to adapt to a more comprehensive framework in time.
Adoption of Level 2 Measures by the EC
On 13 July 2022, and further to receipt of draft technical standards from the European Banking Authority (EBA) and ESMA, the EC adopted certain Level 2 Measures (13 technical standards, consisting of nine regulatory technical standards (RTS) and four implementing technical standards (ITS)) in respect of the Crowdfunding Regulation, which address the following:
- RTS on individual portfolio management of loans by CSPs
- RTS on application for authorisation as a CSP
- RTS on complaint handling
- RTS on exchange of information between NCAs
- RTS on key investment information sheet
- RTS on CSPs' business continuity plans
- RTS on conflicts of interest
- RTS on default rates of loans offered on a crowdfunding platform
- RTS on entry knowledge and ability to bear losses tests
- ITS on project reporting
- ITS on cooperation and information exchange with ESMA
- ITS on notification of national marketing requirements
- ITS on cooperation and information exchange among NCAs
Whilst the Delegated Regulation extending the transitional period is subject to a three month scrutiny period by the European Parliament and Council, it shall enter into force and be applicable no later than 11 November 2022.
The Level 2 Measures are subject to European Parliament and Council scrutiny before being published in the Official Journal of the European Union (OJ) and shall enter into force on the twentieth day following publication in the OJ. The RTS are subject to a three month scrutiny period ending mid-October. However, a scrutiny period is yet to be allocated for the ITS. Whilst it is not expected that these Level 2 Measures will come into force before Q4 of 2022, CSPs should factor them into their horizon scanning and compliance risk frameworks.
The extension of the transitional period should allow CSPs operating under national law sufficient time to adapt to the new regime under the Crowdfunding Regulation. Further, the EC's adoption of the Level 2 Measures, should facilitate CSPs adjusting, with sufficient granularity, their internal procedures before applying for authorisation under the Crowdfunding Regulation.
CSPs should assume that there will be no further extensions to the transitional period (i.e. beyond 10 November 2023), and so, should operate on the basis that an authorisation under the Crowdfunding Regulation must be secured by this date.