Are you a Europe-based entrepreneur? A new set of crowdfunding rules promises to ease access to finance by increasing the amount of money one entrepreneur can raise through platforms while bettering investor protection. Let’s find out more about it.
1. Funding rounds up to EUR 5 million
First, companies would be able to raise a maximum of EUR 5 million (from EUR 1 million proposed by the Commission), calculated over 12 months per project owner.
To enable small companies or start-ups to use the crowdfunding option, the shares of certain private limited liability companies, which are freely transferable on the capital markets, were included in the scope of the legislation.
2. Investor protection
Second, investors would be provided with a key investment information sheet (KIIS) drawn up by the project owner for each crowdfunding offer, or at platform level.
Crowdfunding platforms would need to give clients clear information about the financial risks and charges they may incur, including insolvency risks and project selection criteria.
Besides, investors identified as non-sophisticated would be offered more in-depth advice and guidance, including on their ability to bear losses and a warning in case their investment exceeds either 1000 EUR or 5% of their net worth, followed by a reflection period of four calendar days.
3. The Role of Member States
Last but not least, Member States will be responsible for authorising and supervising crowdfunding providers. In other words, crowdfunding platforms would need to request authorisation from the national competent authority of the member state in which they are established. Through a notification procedure, they would also be able to provide their services cross-border.
Supervision would be carried out by national competent authorities with the European Securities and Markets Authority (ESMA) facilitating and coordinating cooperation between member states.
ESMA’s role, and to a lesser extent that of the EBA, was strengthened in areas such as binding dispute mediation, data collection from national competent authorities to produce aggregated statistics and development of technical standards.
What’s next?
Technical work on the text is now underway by the services of the three institutions. Afterwards, the agreement will have to be approved by the Economic Affairs Committee and the Parliament as a whole.
Oliver* 