ECSPR or European Crowdfunding Service Provider regulations were enacted by the European Union in 2021. The complete application took a few years (2023), but today, under the rules, a securities crowdfunding platform may raise up to €5 million (~ $5.89 million) from investors across the European Union. The caveat being that a platform must first be approved in a member state by a relevant authority to pursue online capital formation. Of course, each member state approaches approval differently, which has led to a few bumps along the way. While ECSPR was expected to be a boon for early-stage firms seeking growth capital, as well as for investors gaining access to private markets, these hopes have fallen somewhat short of the goal.
Today, the European Digital Finance Association (EDFA) has issued a statement regarding the “lost opportunity” for investment crowdfunding in Europe, claiming that if changes are made to improve the rules, a €1 trillion industry will emerge from the continent. For the moment, though, Europe’s growth potential of online capital formation “risks being left untapped.”
Karsten Wenzlaff, a well-known expert in the crowdfunding world and EDFA board member & Secretary General Digital Invest Germany – German Crowdfunding Association, says it is very important that the industry “speaks with one voice in order to achieve this ambitious goal, but also to ensure pragmatic changes on the national level.”
He shares that EDFA has garnered the support of 25 European Fintech and crowdfunding associations to propose 10 changes to improve the European marketplace for securities crowdfunding. These organizations are said to represent 95% of the securities crowdfunding sector in Europe.
In a public statement, EDFA explains its mission to streamline ECSPR, MiFiD-II [Markets in Financial Instruments Directive II], and MiCA [Markets in Crypto Assets regulation] into a coherent Digital Finance Regulatory Framework and ensure more alignment across the EU. This includes updated tax policy and the potential for matching funding to encourage public and private investments. These proposals were said to be gleaned from feedback derived from 32 top investment crowdfunding platforms.
The three most significant obstacles inherent to ECSPR are the fragmentation of implementation of the rules, limited access to public funding programs, and insufficient recognition in policy and regulation, according to the statement.
To address these shortcomings, the strategic priorities for improvement are as follows:
- Streamline MiFID-II, MiCA, and ECSP-R regulations and create a coherent Digital Finance regulatory framework
- Appoint a Commissioner for Digital and Innovative Finance
- Fully Integrate ECSP within the Savings and Investment Union
- Introduce EU-Wide Crowdfunding Tax Incentives
- De-risk investments by European Crowdfunding Guarantees
- Ensure Regulatory Alignment with DORA, FIDA, and AI Frameworks
- Support Innovation with EU Digital Finance Labs
- Promote and support Crowdfunding-based Matchfunding mechanisms to boost Investments
- Boost Financial Literacy and Investor Education
- Launch a European High-Level Digital Finance Advisory Board
Florence de Maupeou, EDFA board member & Deputy General Manager (Institutional Relations & Crowdfunding) at France Fintech, says this framework will create a more conducive environment for the development and harmonisation of rules across Europe.
Ronald Kleverlaan, Chair of Stichting MKB Financiering (NL), predicts that if Europe follows these recommendations, “crowdfunding can unite citizens and businesses in a €1 trillion market that strengthens both our economy and society.”
The ECSPR Working Group within EDFA that crafted these proposals includes representatives from the following jurisdictions: Austria, Bulgaria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Malta, Netherlands, Norway, Poland, Romania, Slovakia, Spain, Sweden, and the United Kingdom.
The EDFA position paper is viewable here: Improving the European Crowdfunding Service Provider Regime.
