On 10 November 2021, the Regulation on European Crowdfunding Service Providers (CSPs) for business entered into application and it is directly applying in the Member States. The regulation entered into force on 10 November 2020, but there was a 12 months transition period.
Crowdfunding is an increasingly growing form of alternative finance for start-ups, and small and medium-sized enterprises (SMEs). Generally, there are three actors: the project owner who proposes the project to be funded, investors who fund the proposed project, and a CSP who brings together project owners and investors through an online platform.
The regulation lays down uniform rules for the organisation, authorisation and supervision of investment-based and lending-based crowdfunding service providers related to business financing, and for the operation of crowdfunding platforms. The regulation does not apply to donation-based or reward-based crowdfunding, where project owners are costumers, and crowdfunding offers with a consideration of more than EUR 5 million over a 12-month period. A CSP needs to be authorised by the national competent authority (e.g. the Central Bank of Hungary) where it is established, and then it will be able to provide its services across the EU.
The regulation introduces certain provisions such as for complaints handling, conflicts of interest and outsourcing, and imposes requirements concerning the safekeeping of assets in relation to investors receiving crowdfunding services. The management body must establish and oversee the implementation of adequate policies and procedures to ensure effective and prudent management. The regulation distinguishes between sophisticated and non-sophisticated investors, and different investor protection safeguards are applicable in each category. The CSPs shall introduce a due diligence procedure in respect of project owners. For the investor protection, the CSPs must provide the Key Investment Information Sheet (KIIS) for prospective investors which contains the main parameters such as information about the project owner(s), the project, main features of the crowdfunding process, risk warnings and investor rights.
The European Securities and Markets Authority (ESMA) shall establish a register of all CSPs, which shall be publicly available on the website of ESMA.