EU: Helping the Crowdfunding Industry grow

A set of new rules was released earlier this week as the European Union is making an effort to help the industry grow.

“The EU market for crowdfunding is underdeveloped compared with other major world economies”, the EU explains. “For many years, one of the biggest hurdles faced by crowdfunding platforms seeking to offer their services across borders has been the lack of common rules and diverging licensing requirements across the European Union. This has resulted in high compliance and operational costs, which prevented crowdfunding platforms from efficiently scaling the provision of their services. As a result, small businesses had fewer financing opportunities available to them and investors had less choice and faced more uncertainty when investing cross-border.”

Eurocrowd, a trade union, pointed out that the new rules are “distinctively different from existing frameworks so that crowdfunding has been established as a separate professional financial services sector.” Moreover, the European Market and Securities Authorities (ESMA) provided a set of new technical standards on crowdfunding for platform operators.

What next? Now we have to wait one year for the new regime to be up and running as National Conduct Authorities would provide advice for its implementation. “With a bit of patience, the market will be able to exploit the new regime and hopefully fulfil its ambitions by becoming a scalable, innovative form of direct investments into the European economy while mobilising capital from retail and institutional investors alike,” Eurocrowd said.

Ronald Kleverlaan, Director of the European Centre for Alternative Finance, an academic research centre at Utrecht University with a multi-disciplinary approach, told “Most likely, a large number of platforms will stop their operations in the next 12 months and existing platforms need to adjust their business model and infrastructure. This will cause a shake-out in the industry.”