While European Crowdfunding Service Provider regulation (ECSPR) was expected to fuel the growth of online capital formation in Europe, the actual results have been less than stellar. As Eurocrowd explains, the “patchwork” of rules and significant investment needed to support compliance, disclosures, risk management, and governance has tempered growth. In fact, only about 30% of nationally licensed investment crowdfunding providers have pursued pan-European crowdfunding due to ECSPR’s challenging rules.
While Eurocrowd was leading the charge in creating EU-wide regulation for online capital formation, the reality displays a need for policymakers to adjust and adapt to how the markets are reacting. National Competent Authorities (NCAs), the entity in each member state that is the relevant regulatory authority, need to harmonize their approach to ECSPR. Currently, platforms are faced with a fragmented regime as each European country has established its own requirements to be approved to offer securities across the EU.
Eurocrowd recently published a report on the status of ECSPR that explains the “current compliance burden risks limiting market growth, innovation, and access to alternative finance, particularly for SMEs.”
A good indicator of the challenges is that France leads the way with ECSPR-approved platforms. They are followed by Italy, Spain, the Netherlands, Lithuania, and Belgium. Missing from the top five list is Germany, the largest economy in the European Union.
The report states:
“Germany’s difficulty in adopting a professional crowdfunding market underscores the tension between national regulatory preference and ECPSRs investor protection goals.”
The report outlines several recommendations for regulators as well as crowdfunding service providers.
In the end, if regulatory improvement and alignment are not achieved, the securities crowdfunding market risks “stagnation” and investor trust, as well as harming access to capital for smaller firms.
As CI has always advocated, for securities crowdfunding to be effective, each constituent stakeholder must be able to achieve success: issuers must be able to raise the funding they need, platforms must become profitable (sustainability) and investors must generate a return on their investment.