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Protecting investors: new one rules for European Crowdfunding Service Providers




The attention of the European Parliament is more than ever focused on the development of new business technologies.

Now crowdfunding is an alternative financing instrument is one of the fastest growing areas on the border of IT and the financial sector.

General provisions

In «REGULATION (EU) 2020/1503 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937» crowdfunding called is «increasingly an established form of alternative finance for start-ups and small and medium-sized enterprises, typically relying on small investments». Crowdfunding is an increasingly common form of intermediation in which a crowdfunding service provider operates a public online platform without any risk of its own to unite or facilitate the alignment of potential investors or lenders with companies that need funding. Such funding could take the form of loans, the acquisition of securities or of other admitted forms.

This means that it can be an alternative form of financing for both companies and individuals.

Investor protection

The final vote on EU rules for crowdfunding platforms also set investor protection rules. The main ones:

- All information, including marketing, about themselves, about the costs, financial risks, about the crowdfunding project selection criteria, and about the nature of, and risks associated with, their crowdfunding services shall be fair, clear and not misleading.

- Crowdfunding service providers must inform all investors about crowdfunding not covered by the deposit guarantee scheme by providers.

- service providers should educate their clients about the opportunity to take some thought time for new investors without a digital investment experience.

- The information should be available to all clients in a clearly visible and easily accessible section of the crowdfunding platform website.

- When applying credit scores or other assessment methods, the supplier must provide a description of the method used to calculate such credit scores or prices. If the calculation is based on unaudited accounts, this should be clearly stated in the method description.

Authorization and control of crowdfunding service providers

Currently, the norms of technical standards for Crowdfunding Service Providers platforms are being developed.

To effectively protect investors and provide a market discipline mechanism, a threshold has been set for a crowdfunding proposal made by a specific project owner. This threshold is set at € 5,000,000 calculated over a period of 12 months.

Thus, the adopted rules oblige the EU member states to protect investors from financial losses, as well as to equal access to the market of crowdfunding services which the provider can carry out both within the country and abroad.


* The source of information - Official Journal of the European Union, Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (Text with EEA relevance)

https://www.europarl.europa.eu/news/en/press-room/20201002IPR88439/final-vote-on-eu-rules-for-crowdfunding-platforms



Common rules to boost crowdfunding platforms and protect investors: final vote on EU

6.10.2020 final rules were adopted at the vote in the European Parliament to develop EU crowdfunding platforms and protect investors.

«REGULATION (EU) 2020/1503 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937» became the new EU common law governing use of the crowdfunding platform.

Background

Crowdfunding is a popular practice of funding business activities of natural and legal persons. Such funding is provided by online platforms by a large number of people or organizations. This allows businesses to raise relatively small amounts of money from different investors.

Methods for regulating activities of crowdfunding platforms in EU

To provide crowdfunding service, need appropriate permission. Provider of crowdfunding services, after the authorization procedure, is able to provide its services abroad. Providers of crowdfunding services can provide their services only under the supervision and the competent authorities that have granted permission for this type of activity. In the case of the provider's activity abroad, Member States are responsible for obtaining permits and overseeing the digital platform.

Single set of rules on crowdfunding services

Сrowdfunding services have so far remained largely national. This damaged the all-Union crowdfunding market, and deprived enterprises of access to crowdfunding services. For equal access to the service and participation of investors, have been adopted general rules for crowdfunding platforms. The threshold for consideration of crowdfunding proposals should be set at 5,000,000 euros.

Investor protection

In order to maintain a high standard of investor protection and reduce investment risks, the provider must ensure that all clients, suppliers are treated fairly and that projects on their platforms are selected by a professional, honestly and transparently, and that crowdfunding services are provided in the same manner. One of the goals of the common law for EU member states on activities of crowdfunding platforms is maximum protection of the investor from risks.


* The source of information - Official Journal of the European Union, Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (Text with EEA relevance).

https://www.europarl.europa.eu/news/en/press-room/20201002IPR88439/final-vote-on-eu-rules-for-crowdfunding-platforms

ELI: http://data.europa.eu/eli/reg/2020/1503/oj

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