The European Commission has extended the deadline for compliance with the relatively new European Crowdfunding Service Provider Regulation (ECSPR).
Last November, the European Union enacted harmonized regulations for investment crowdfunding platforms and offerings. Under the rules, issuers could raise up to €5 million across all member states. Platforms had to be approved by the relevant national authority, to gain access to the EU market. Member state regulators were tasked with crafting updated rules that enabled pan-European crowdfunding. Some countries moved quickly to construct a regime that enabled ECSPR, others struggled to create new rules thus engendering a disparity across the single market.
In May of this year, the Bundesverband Crowdfunding e.V. (the German Crowdfunding Association) and Financement Participatif France (the French Crowdfunding Association) issued a statement stating their desire that the transition period for ECSPR is extended. The organizations stated at that time:
“… in order for the platforms to be able to implement the ECSP regulation, uniform regulatory standards must be adopted. Although the European supervisory authorities ESMA and EBA have already submitted drafts, these have not yet been adopted by the European Commission – which is why the national supervisory authorities have generally not yet started implementing the licensing requirements.”
Since the regulatory standards have not yet been adopted at the European level, platforms can’t submit full license applications, nor can the national regulatory authorities set their own standards.”
In brief, both Germany and France were struggling to create an updated regulatory process for platforms to receive an ECSP license.
Around the same time, the European Securities and Markets Authority (ESMA) issued a statement telling crowdfunding service providers to “accelerate their transition to the new regime.” A bit of a backhanded statement as platforms first had to gain approval from the member state regulator.
ESMA noted that there were “potentially detrimental consequence an absence of extension of the transitional period” while adding the caveat that an “extension may also raise investor protection and convergence concerns.”
Under ECSPR, a one-year extension may be granted. The new deadline is one year later so November 10, 2023.
In the statement of delegated regulation extending the “transitional period,” the Commission pointed to consultation by ESMA that declared:
- It is not possible to assess the impact of the Regulation, as there are only a few cases of platforms originally authorized under national law that are now operating under the Regulation;
- The application of the Regulation for existing platforms as of 10 November 2022 may result in disruptions for some large national markets due to the inability to re-authorize all the existing platforms on time and for crowdfunding platforms to adapt their business operations to a broader and more granular framework (compared to the national one), leading to serious risks of an interruption in the provision of crowdfunding services by large operators, with consequences also for investors on those platforms and for the integrity of those markets;
- An extension of the transitional period is warranted, but only for platforms that have asked for re-authorization under the new ECSPR regime before 1 October 2022.
The EU chastised certain member state policymakers due to the “inability of certain competent authorities to complete authorization procedures by 10 November 2022.”
This week, FPF criticized ECSPR implementation claiming:
“.. the period of one year is far too short for bringing the sector into compliance because the changes are numerous, the vagueness and variations of interpretations still persist, and the number of players to be registered in France is substantial.”
In theory, ESCPR is a huge win for the securities crowdfunding sector, aligning with the EU mission of a single market. In reality, the process has been bumpier than anticipated as financial regulations differ from country to country and national authorities move at their own pace. Over time, as these hurdles are managed, expectations are for a booming pan-European market to arise that enables online capital formation to thrive. It is just going to take a bit more time.