As has been previously reported, the European Union has approved pan-European securities crowdfunding or European Crowdfunding Service Providers Regulation (ECSPR). This means that issuers may solicit investors across all 28 EU member states. The new regulation enables early-stage firms to raise up to €5 million. Previously, issuers had to adhere to each country’s national laws creating a highly fragmented ecosystem. Years in the making, expectations are high that the streamlined environment will be a boon for issuers, platforms, and investors.
While ECSPR may seem simple from afar, challenges remain. A platform must be regulated in one European country and regulators are currently working through the details to chart a path for European approval. It was reported earlier this month that implementation of ECSPR may have its deadline extended as member states work through the process that appears to be taking longer than originally anticipated. Additionally, national nuances may create an opportunity for regulatory arbitrage for platform regulation. Several US-based platforms are also poised to enter the European market as well.
One of the largest securities crowdfunding markets in Europe is in France. Financement Participatif France (FPF), the French Crowdfunding Association, represents both platforms as well as firms that support the industry including other Fintechs. At the beginning of the year, FPF reported that crowdfunding platforms had raised €1.88 billion – an increase of 84% versus the year prior. Since 2015, almost €5 billion has been raised on French platforms – the bulk of it from debt-based platforms.
Crowdfund Insider recently connected with Florence de Maupeou, Directrice générale, of FPF for insight as to how ECSPR is progressing in one of the largest European countries. Our discussion is shared below.
ECSP enabled pan-European crowdfunding up to EUR 5 Million this past November. The new rules require a platform to be regulated by the relevant authority to issue securities across all member states. Where is France in this process?
Florence de Maupeou: Exchanges between platforms and French regulators have been regular for several months, whether directly (regulators organize workshops or participate in webinars), or via Financement Participatif France (FPF), which meets regularly with the authorities.
A large number of platforms have already sent to the regulator a VO (a first version) of their application for agreement to ensure the completeness of their demand. A few have already sent in their application for agreement officially. Most platforms will wait until July to submit their application for approval on the dedicated portal in order to ensure that they benefit from the French regulatory statute (and in particular the threshold of 8 million euros in capital) until the last moment.
Do you expect that certain European countries will emerge as jurisdictions of preference for platforms to offer pan-European securities? If so, which countries do you believe are well-positioned?
Florence de Maupeou: Probably Germany, the Netherlands, Belgium, Italy, and Spain.
There are certain challenges to offering securities across all EU Members – like cost to the issuer or platform. What are some of the biggest hurdles?
Florence de Maupeou: The main obstacles that we identify at this stage are :
- Pan-European communication on issuing offers. If it must be translated into several languages, it may be expensive and therefore a burden. Similarly, if the KIIS must be translated and the responsibility for the translation lies with the issuer, it may be hesitant to open its fundraising to countries other than its country of origin.
- Taxation, specific to each European country, will also be a major obstacles
How many of your member platforms expect to take advantage of pan-European crowdfunding rules?
Florence de Maupeou: It’s hard to say. If the “pan-European” aspect of the regulations is obviously appreciated, many other points are blocked in the European regulations and some (such as article 8 on conflicts of interest) call into question the business model of certain platforms.
You have requested a transition period to access the statute of European Crowdfunding Service Provider. Why is this?
Florence de Maupeou: The deadline of November 2022 seems too short for the sector to obtain the ECSP statute in good conditions. Indeed, there are remaining some decisive pending questions and the publications of technical standards. Moreover, the French crowdfunding sector is flourishing, and there is a risk of a traffic jam for the agreement request.
Are you optimistic for sector growth for online securities offerings in the EU, in the long run?
Florence de Maupeou: On a European level, this new regulation should boost the sector in certain countries where it’s currently poorly regulated and little used. On a French level, the crowdfunding sector has experienced a nice growth over the past 10 years. It almost reached a collective of €2 billion in 2021, with 84% growth.
The European regulation is likely to slow down because of the threshold limited to €5 million (instead of the €8 million that we currently know) and because of the “heaviness” of the compliance and the requirements (in terms of prudential requirements, for example).
Is there a risk of too many platforms and too few deals?
Florence de Maupeou: I don’t think so. The European Regulation will just enable the strongest platforms to operate.
Over time, what do you think policymakers can do to improve the ecosystem?
Florence de Maupeou: Have more confidence in the sector and the players to change the regulations so that they are not dissuasive to the stakeholders. In France, the regulatory framework was created in 2014. In the beginning, issuers could only raise up to €1 million on the platforms. The threshold has gradually changed to reach €8 million in 2019.
What are your thoughts on secondary markets for crowdfunded securities?
Florence de Maupeou: This is something we obviously must move towards. The simple bulletin board permitted by the regulation is a good start, but more needs to be done to facilitate the liquidity of securities.