On the eve of the presentation of the European Commission proposal, on Thursday 8 March, for a single European framework for crowdfunding platforms, the industry’s expectations are high. Since a version of the draft regulation was published in early February (see EUROPE 11955), a number of stakeholders are taking a position in favour of a clear framework that protects investors.
The European Consumer Organisation (BEUC) expects the Commission’s proposal to have “minimum information requirements about projects and greater disclosure by the platform of the risks”. The Association of Chartered Certified Accountants (ACCA) also calls for the new European framework to ensure that these platforms provide businesses with “adequate protection from becoming overexposed to riskier investments”.
Readers may recall that the Commission intends to allow crowdfunding service providers to apply for accreditation at European level in order to operate throughout Europe, under certain conditions.
Many organisations warn against the risks of this economic model - which consists of putting savers in touch with the owners of projects through Internet platforms - and offers no guarantee for the capital invested should the project fail.
One year ago, the French consumer group UFC-Que Choisir first sounded the alarm, publishing a scathing report on the activities of the largest crowdfunding platforms, accusing them of playing down the risks to investors.
According to the organisation, the risks inherent to investing through crowdfunding are exacerbated by the economic model of platforms which, as they are paid on a commission basis, are encouraged to offer consumers as many projects as possible, “with a clear disregard for a quality selection” (our translation).
Its report revealed, for instance, that in the case of the 2017 market leader Unilend, the risk rates announced were more than 40% lower than was actually the case.
Speaking to EUROPE on Tuesday 6 March, the Executive Director of the European Crowdfunding Network (ECN), Oliver Gajda, said that the level of protection proposed in the draft regulation was balanced, given the nature of the risk inherent to the sector.
He also said that crowdfunding should not be regulated as strictly as the banking sector, for instance due to the differences in economic model, adding: “this is not a bank product and platforms are not banks”.
He considers that the draft regulation - as it stood in early February - furthermore contained additional protections for consumers, referring in particular to the ‘Key information document on investments’, which must be provided for each crowdfunding offer and presented in a document of no more than six pages in length. Furthermore, ESMA will be responsible for supervising them and will also have powers to withdraw authorisations in the event of any breach of the European rules.
“This already goes beyond what current national laws require in many cases”, he said.
Another aspect of the tax, on the other hand, is more of a problem for Gajda. This concerns limiting the European regime of individual financing offers via platforms to €1 million over 12 months.
The number of companies currently using crowdfunding to raise more than €1 million is high and rising fast, he explained. This means that setting a limit of this kind would lead to the risk that many platforms will choose to stay out of the new European system, thereby avoiding any cross-border funding, in order to continue to facilitate greater financing at national level - which would ultimately go against the initial objective of the regulation.
He believes an upper limit of €8 million (in line with the maximum threshold that member states may set under the ‘Prospectus’ regulation), together with a cap on investment from residents of any given member state equal to that country’s prospectus threshold, would be a more balanced proposal. This would mean that platforms opting for the European regime would not be at a competitive disadvantage to those deciding to remain under the national rules.
The Commission’s proposal is therefore eagerly awaited, particularly as, according to our information, the institution is reported to have watered its text down on certain points. (Original version in French by Marion Fontana)