Several weeks back, CI covered the draft legislation for pan-European crowdfunding rules from the European Parliament. At that time, initial coin offerings (ICO) were part of the possible legislation. Crowdfunding is part of the European Union Fintech Action plan that directly aligns with the Capital Markets Union (CMU) which as the heart of the Union.
The EU has stated in the past that:
“A lack of a common EU [crowdfunding] framework also hinders the ability of crowdfunding providers to scale-up within the Single Market mainly due to conflicting approaches to national supervision and regulation.”
Additionally, securities crowdfunding is a part of the calculus of matching risk capital to early-stage ventures from a broader group of investors. As exemplified in the recent EU Startup Monitor, entrepreneurs and innovators play a vitally important economic role of job creation and prosperity within the European Union. Access to capital is consistently a top concern for early stage firms.
As part of the legislative push, the European Parliament Economic and Monetary Affairs Committee have agreed to extend the scope of the regulation by increasing the maximum threshold for each crowdfunding offer to €8,000,000, calculated over a period of 12 months.
Last October, the European Crowdfunding Network (ECN) published a position paper (embedded below) on looming changes to European crowdfunding rules. The ECN stated that based on their extensive experience operating in this space, they believe there are 16 key issues which, if not addressed appropriately, “would defeat or undermine the stated purposes” of any attempt to create pan-European rules.
CI recently reached out to Oliver Gajda, the Executive Director of ECN. Gajda has long advocated on behalf of common sense, rationalized crowdfunding rules.
“The European Parliament ECON Committee has issued their response to the EC proposal and indicated they are ready to move to trialogue, i.e. the negotiation with the European Council. The latter has had 3 working meetings and is still in the process of discussing their own response to the EC proposal,” said Gajda. “Another meeting is envisioned for December under the Austrian Presidency of the Council, but it looks unlikely that this will be enough to reach an agreement. Still, best to wait. If they don’t, the Romanian Presidency of the Council is expected to finalize this. However, European Parliament elections are at the end of March, so the trialogue would need to be concluded early in 2019 in order for this Parliament to vote on the final proposal. This may be difficult if the Austrian Presidency cannot make big steps. Given other big topics and Brexit, crowdfunding may fall aside if time become tight.”
CI asked Gajda if the European Parliament version has been well received. He said yes, the proposal has been well received but there are some issues that are open for interpretation and the industry would prefer to see certain segments better defined or rephrased:
“We believe that with the Parliament proposal and the EC proposal there is a good basis for a relevant harmonization of crowdfunding across Europe.”
The biggest concern is that the European Council may favor minimum harmonization, which would leave room for interpretations for national conduct authorities and consequently be counteractive to the proposed goal of aligning the European markets. Gajda hopes that a finalized proposal can create and maintain a workable harmonization of rules.
“Full harmonization, unfortunately, is likely not achievable in this short time frame and with the national crowdfunding laws already so diverse.”
And what about the inclusion of initial coin offerings (ICOs)? This has been an area of debate globally, not just within Europe. The draft parliament rules incorporated ICOs. Another twist is the fact that France is moving forward with its own set of ICO regulations. The French government wants to create a jurisdiction of preference for issuers of crypto.
Gajda sais the inclusion of ICOs have been dropped from the proposal by the European Parliament. This was due to the majority of conservatives:
“As neither the EC nor the Council had an appetite for this,” said Gajda. “It is positive in as much as it will not create delays in discussion a highly controversial topic. As to the opportunity that has been missed, this is a pity for (of course, limited to security tokens below €8 million) a professional ICO market, of course.”
Gajda added that we are now likely to see more national approaches develope for ICOs in Europe. The EU may undertake an impact assessment of the market before moving to a proposal on ICO regulation.
“This is likely keeping consumer protection and professional market developments at bay. It is also likely that by the time the EC has made its assessment of the ICO market, national regulations may have created once more significant fragmentation and it may again be very difficult to align those later on.”