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Payments & FinTech Lawyer

EU Commission proposes cross-EU crowdfunding regime

On 8 March 2018 the European Commission (‘EC’) put forward a proposal for a regulation on crowdfunding service providers (‘Proposal’), which aims to address what the EC views as an underdeveloped market by providing common rules across the EU. The Proposal was released as part of the EC’s FinTech Action Plan, which features 19 steps designed to “harness the opportunities presented by technology-enabled innovation in financial services.”

The goal of the Proposal is to create an EU passport for crowdfunding service providers (‘CSPs’), for which CSPs can apply if they choose, enabling them to scale up their operations across the EU. Given that certain Member States have enacted their own national crowdfunding regimes, a CSP can thus choose to apply for authorisation under the Proposal - which would cover the CSP both at national and EU level - or else choose not to apply for authorisation under the Proposal and instead provide services domestically under the applicable national legislation. “With the emergence of a crowdfunding ‘passport’ and taking into account the increased marketing opportunities, it is possible that more small and medium enterprises would use crowdfunding as a method of raising capital,” comments Sam Robinson, Partner at CMS Cameron McKenna Nabarro Olswang LLP.

“The Proposal needs to be fine-tuned before we can predict its impact,” believes Alessandro M. Lerro, Founder at Lerro & Partners. “For example, if the funding limit remains set at €1 million per project per 12 months, European platforms will not reach sufficient scale to operate, so they will prefer to remain in their national framework.” Lerro adds that “The proposal to apply 27 different national regulations to marketing communications is just crazy, as is the ban on advertising single projects: this Proposal openly claims to be drafted in order to support the growth of the market, but it’s killing the baby in the cradle.”

Besides the Proposal, the EC announced through the FinTech Action Plan that the European Supervisory Authorities (‘ESAs’) will look at best practices for regulatory sandboxes, and the EC intends to publish a blueprint on this topic, based on the ESAs’ work, by Q1 2019. Among other initiatives is the EC-hosted EU FinTech Lab, which will provide a space for EU and national authorities to meet with technology service providers with the aim of increasing the capability and knowledge of regulators on topics such as RegTech and artificial intelligence.

In regards to distributed ledger technology (‘DLT’), the EC recently hosted a blockchain/DLT standardisation workshop and in the Action Plan states it is developing a comprehensive pan-economy strategy on blockchain/DLT. “If the EC is genuinely serious about pushing for a Capital Markets Union and a Digital Single Market, establishing harmonisation around blockchain is almost certainly inevitable,” said Robinson.

“The EC claims to support a more innovation-oriented approach to FinTech by facilitating a regulatory environment where innovative financial services, products and solutions can be rolled out across the EU in a safe, financially stable environment for investors and firms alike,” concludes Lerro. “Unfortunately, in European politics, the synchrony between action and intention is often poor.”

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