The 29th Regime

In an open letter to the EU Member States on the European Crowdfunding Services Providers Regulation (ECSPR) presented in March 2018 as part of the Fintech Action Plan 2018, the European Crowdfunding Network (ECN) asks for fully harmonized EU rules to replace the 28 national regulatory regimes which have made crowdfunding largely a national issue.

A fragmented regulatory environment has in fact meant,

that the vast potential for cross-border capital flows has not been tapped, leading to substantially less funding and fewer investment opportunities across the EU that would be available under a unified regime, the letter states.

THE LETTER. The starting point of their reasoning is that “despite the important economic contribution of SMEs to the European economy, they continue to be underserved by banks.”

So, creating a level playing field and allow European platforms to expand their support for SMEs across the Single Market would make the EU market more accessible for innovative entrepreneurs, start-ups and small- and medium-sized companies, they argue.

Moreover, this would give investors a wider range of choices in how they allocate their capital across Europe whilst promoting non-bank financing as an alternative source of funding.

THE LETTER’S BACKGROUNDAccording to EU analysts, the fast-approaching General Elections which will be held in May 2019 risk to undermine the process of adopting the ECSPR prior that the current legislative mandate will come to an end.

This is why the European Commission asked the co-legislators to quickly adopt the proposal. However, only the Parliament has shown commitment having approved the new set of rules on crowdfunding last 5 November 2018.

In contrast, the discussions in the EU Council have just started and the most critical element is the Commission’s proposal of a 29th regime to sit along the national legislation.

Most countries seem to prefer instead a so-called ‘minimum harmonization approach’ which does not contest the national legislation avoiding the risk of arbitrage.

THE 29th REGIME. In this context, ECN, whose members include leading platforms such as Seedrs, Crowdcube and Ulule, supports the idea of a 29th regime also because this would lower the operational and compliance costs of its affiliates.

With a minimum harmonization approach, they wrote to the Member States, “operational and compliance cost would remain a prohibitive hurdle for most crowdfunding platforms and, as a result, would limit access to finance for start-ups and small- and medium-sized companies” whilst the market will continue to be fragmented.

You can download the Open Letter in PDF here.