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ESMA issues technical standards for the new European Crowdfunding Service Providers for Business regulation regime; new regime officially in force

15 Dec 2021

The snappily titled “European Crowdfunding Service Providers for Business” regulation (EU) 2020/1503 (ECSP Regulation) was published on 20 October 2020 and seeks to provide a harmonised regime across the EU/EEA for the provision of investment-based and lending-based crowdfunding services related to business financing. The key measures of the regulation, as outlined below, will enter into practical effect from 10 November 2022 following the expiry of a one-year grace period from the official coming into force date of 10 November 2021.

In the interim, the EU institutions are working to finalise technical guidance covering the new regime. On 10 November 2021, ESMA published its Final Report on technical standards under the ECSP Regulation in order to provide indicative guidance to competent authorities and stakeholders. The technical standards in ESMA’s report are subject to adoption by the European Commission which will need to decide whether to adopt the technical standards within 3 months from 10 November 2021.

Recap of the ECSP regulation: Authorisation requirement

To recap, the ECSP regulation requires a legal person intending to provide crowdfunding services to apply to the competent authority of the member state where it is established for authorisation as a crowdfunding service provider (ECSP). “Crowdfunding services” for these purposes means the matching of business funding interests of investors and project owners through the use of a crowdfunding platform and which consists of any of the following activities:

  • The facilitation of granting of loans
  • The placing without a firm commitment basis, as referred to in activity A7 of MiFID II (found in Section A of Annex I), of transferable securities and admitted instruments for crowdfunding purposes issued by project owners or a special purpose vehicle, and the reception and transmission of client orders, as referred to in point (1) of that section, in relation to those transferable securities and admitted instruments for crowdfunding purposes

The ESCP Regulation adds clarity by restricting member states from obligating firms to become licensed as credit institutions in order to provide these services, distinguishing the activities above from those of undertaking the acceptance of deposits, ie traditional banking.

Recap: Raising standards across the EU

The ESCP Regulation aims to benefit investors on crowdfunding platforms through establishing an enhanced investor protection framework which will be based on:

  • Clear rules on information disclosures for project owners and crowdfunding platforms
  • Rules on governance and risk management for crowdfunding platforms
  • Strong and harmonised supervisory powers for national authorities overseeing the functioning of crowdfunding platforms

ESMA’s recent report

ESMA’s technical report covers all of its 12 mandates in this area, including four with a legal deadline of May 2022 and covers all investor protection aspects under the ECSP Regulation, namely:

  • Complaints handling
  • Conflict of interest
  • Business continuity plan
  • Authorisation
  • Information on default rate
  • Entry knowledge test and simulation of the ability to bear loss
  • Key investment information sheet
  • Cooperation between competent authorities
  • Reporting
  • Notification to ESMA of national provisions concerning marketing requirements
  • Cooperation between competent authorities
  • Cooperation between competent authorities and ESMA

It will be important for firms active in this area to closely review the ECSP Regulation and ESMA technical report in preparation for the activation of some of the key provisions of the regime during 2022.

ESMA’s press release can be found here and the Final Report here.

The Regulation itself can be accessed here

More information can be found here