The European Union Straightens Laws For Crowdfunding In Europe

The European Parliament and the Council have agreed on a new set of rules that will provide more protection to investors from financial losses. As detailed in the announcement, the new set of rules will apply to crowdfund services in the European Union (EU), up to 5 million euros. This amount is set to be calculated within a 12 month period per project owner and will apply to all European Crowdfunding Service Providers (ECSP). 

More Protection For Investors

The legislation will force ECSP to provide new investors with an information sheet containing detailed information about the associated financial risks and chargers that investors could incur, including insolvency risks and project selection criteria. Additionally, investors qualified as non-sophisticated will receive personalized advice and guidance in regard to their ability to bear losses and the issuing of warning when their investment exceeds 1,000 euros or 5% of their net worth. 

New Requirements For European Crowdfunding Service Providers

In addition, new ECSP will also be subjected to request further authorization from the national competent authority (NCA) of the member state in which the company is based. Once this primary authorization is obtained, ECSP will be able to request authorization to provide its services cross-border under the supervision of the NCAs and the European Securities and Markets Authority (ESMA). Both authorities will cooperate and coordinate their efforts to regulate ECSP and guarantee compliance with current regulations. Furthermore, the ESMA will provide binding dispute mediation and will collect data from the NCAs to generate statistics and develop technical standards across the European Union. 

Small companies and start-ups have also been included in the scoop of this new set of rules to ensure they’re able to take advantage of crowdfunding methods, along with the shares of certain private limited liability companies, which are also freely transferable on the capital markets. 

As of today, the legislation is currently on the works, but once all the technical details are resolved, the Economic Affairs Committee and the Parliament will vote to approve the new set of rules. 

ECSP in Europe have already shown their support for the agreement reached. According to FundedByMe, one of the largest equity crowdfunding platforms in the EU: 

… this new agreement will impact the business positively 2020 and onwards and (FundesByMe) is especially happy to see that collaborations with local legislative branches have been a solid strategy.