File this one under recently discovered, but the European Commission published a report earlier this year that pretty much crushed any hope for a more synchronized approach for debt and equity crowdfunding across Europe. As highlighted in the editorial by Alessandro Lerro earlier this week, the EU has decided to skip over this portion of CMU and let national regulatory regimes prevail. The policy statement was made even as the authors of the report lauded the potential of P2P/Crowdfunding to reinvigorate European economies. The report stated;
“…crowdfunding, while currently relatively small, has the potential to bring significant benefits to the EU economy in terms of jobs and growth, especially by providing an alternative funding source for start-ups, SMEs and unlisted companies. At the same time, as with any type of investment, the promotion of these benefits needs to be pursued in parallel with ensuring appropriate safeguards.”
The document reviewed the “bespoke regulatory” actions currently taking place in multiple European countries for a “largely local” industry. “These domestic regimes are consistent in their approach, as they aim at enabling the development of this source of funding while addressing key risks that may arise, notably for investors [within each country]”.
MiFID was deemed as not being applicable for crowdfunding platforms in some circumstances as they “do not qualify as financial instruments under MiFID (for example, ‘non-readily realisable securities’).”
The document makes a myopic error in stating €500,000 would provide a safe harbour for the development of the vast majority of crowdfunding initiatives in regards to the Prospectus exemption. This is a rear-view mirror perspective and does not acknowledge the growth potential for the industry nor the success of €5 million crowdfunding rounds occurring in the UK today.
The nail in the coffin for any near term EU-wide initiatives to streamline and facilitate cross-border alternative finance is clarified in the conclusion;
“Given the predominantly local nature of crowdfunding, there is no strong case for EU level policy intervention at this juncture. Crowdfunding is still relatively small and needs space to innovate and develop. Given the dynamism of crowdfunding and the potential for future cross-border expansion, it will be important to monitor the development of the sector and the effectiveness, and degree of convergence of, national regulatory frameworks.”
It is probably understandable the Commission is inclined to take a pass for now. Brexit continues to impact policy decisions and will continue to do so for quite some time. The recent battle between the EU and Ireland regarding tax policy is indicative of an institution struggling for a cohesive identity. For now, the Commission has far too much on its plate. Let’s hope the individual countries continue to work towards creating a vibrant and robust alternative finance sector with bespoke rules and without the assistance of Brussels.