Earlier this week, the European Union approved legislation that will harmonize securities crowdfunding rules for member states. Inclusive in the legislation is a 12-month funding cap of €5 million for issuers leveraging online capital formation. The goal is to facilitate capital formation for entrepreneurs and smaller firms – a key policy focus of the European Commission. Overall, the crowdfunding legislation is being viewed as a big win for the Fintech sector and the overall European economy.
Currently, the EU struggles under a fragmented regulatory regime with bespoke rules at the national level. While some issuers do raise capital on a pan-European basis intrinsic friction within the process hobbled online capital formation.
The European Crowdfunding Network (ECN), the leading voice for the industry, lauded the new rules stating:
“The European Crowdfunding Network wholeheartedly welcomes the new Regulation for European Crowdfunding Service Providers. We believe it has the potential to make pan-European crowdfunding a reality, and that doing so will be of huge benefit to European start-ups and SMEs and to European investors.”
The ECN added that the full benefits of a harmonized EU regime for investment crowdfunding may only be achieved if the European Securities and Markets Authority (ESMA) and national regulators coordinate closely.
To quote the ECN:
“The harmonized rules will help crowdfunding to function more smoothly across the EU and to support cross-border funding, by providing for a single set of rules on crowdfunding. It will apply to all ECSP regulated crowdfunding platforms for offers of up to EUR 5m, calculated over a period of 12 months per project owner. There are however certain areas in which Member States will still have the power to make adjustments in due course.”
It must be noted that the ECN has worked diligently behind the scenes for years promoting a harmonized regulatory approach for crowdfunding. In fact, the legislation probably would not have received the political attention it did without the ECN advocating on behalf of the industry.
The final text of the legislation should be made public within the next few weeks with the regulation becoming actionable at some point in 2021.