ESMA Seeks Postponement and Requests Interpretation Clarifications.

Regulation (EU) 2020/1503 on European crowdfunding service providers for business will apply from 10 November 2021. The Regulation provides a set of harmonised EU rules for the provision of investment-based and lending-based crowdfunding services to facilitate business financing. The Regulation enables crowdfunding service platforms to apply for an EU passport so that that they can offer their services across the EU.

The European Securities and Markets Authority (ESMA) has expressed some concerns to the European Commission in relation to the application dates relating to this Regulation and in relation to some areas of interpretation.

ESMA’s Requests

In a letter to Mairead McGuiness, the European Commissioner for Financial Stability, Financial Services and the Capital Markets Union, ESMA requested the European Commission to defer the date of application of the Regulation. EMSA also requested the European Commission to clarify certain points of interpretation in the Regulation.

In this briefing, we set out the detail of ESMA’s requests.

Delayed Application Date

The Regulation states that it will apply from 10 November 2021. ESMA is also required to submit most of its technical standards by 10 November 2021.

This overlap in dates has raised concerns that:

  1. There would be a significant time lag between when the Regulation would apply and when the technical standards would apply.
  2. Harmonisation and level playing field issues among Member States would occur.
  3. It would make authorisation of crowdfunding services providers more complex for applicants and Member State regulators.

ESMA has therefore requested the European Commission to delay the application of the Regulation beyond 10 November 2021 so that the Regulation may apply in a more harmonised and orderly fashion.

Issues of Interpretation

ESMA also requested the European Commission to clarify certain points of interpretation in the Regulation.

  1. How does the transitional period for current crowdfunding service providers apply?
  2. What is the meaning of “business activity or activities” within the definition of “crowdfunding project” and whether that language prevents public sector or non-profit entities from acting as project owners and whether they can seek funding for public sector projects?
  3. Whether the provision of “individual portfolio management of loans” by a crowdfunding service provider constitutes a crowdfunding service and whether it should be regarded as an ancillary function to granting loans under the definition of a crowdfunding service.
  4. What is the scope of the prohibition on preventing prospective non-sophisticated investors and non-sophisticated investors from investing in a crowdfunding project?
  5. What is the meaning of “routing of orders” within the restriction on crowdfunding service provider’s remuneration?
  6. What are the respective responsibilities of the project owner and crowdfunding service provider for the preparation, publication, and verification of the key investment information sheet?

Looking Ahead

We currently await the European Commission’s response. In the meantime, prospective Irish crowdfunding service providers should anticipate a 10 November 2021 application date, subject to the fact that this date may be delayed. We will keep you updated if this occurs.