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Documents considered by the Committee on 25 April 2018 Contents

6Crowdfunding and P2P lending: new EU regulatory framework

Committee’s assessment

Politically important

Committee’s decision

(a) Not cleared from scrutiny; further information requested; drawn to the attention of the Treasury Committee; (b) Cleared from scrutiny

Document details

(a) Proposal for a Regulation on European Crowdfunding Service Providers (ECSP) for Business; (b) Proposal for a Directive amending Directive 2014/65/EU on markets in financial instruments with respect to crowdfunding

Legal base

Article 114 TFEU; ordinary legislative procedure; QMV

Department

Treasury

Document Numbers

(a) (39550), 7049/18 + ADDs 1–3, COM(18) 113; (b) (39551), 7048/18 + ADDs 1–2, COM(18) 99

Summary and Committee’s conclusions

6.1Crowdfunding is a relatively new form of financing, where an online platform or intermediary connects investors—often individual savers—with counterparts looking for funding. The most common forms are peer-to-peer (P2P) lending, where businesses or consumers are provided with a loan and the investors receive debt repayments, and investment-based crowdfunding, where investors bet on a business generating a cash flow in the future by buying investments such as shares or debt securities. British platforms are by far the most prolific European crowdfunding ‘hubs’: of the €4.2 billion (£3.6 billion)75 raised through crowdfunding in the EU in 2015, 80 per cent was raised in the UK.

6.2In March 2018 the European Commission proposed a new Regulation to create an EU-level regulatory framework for investment- and loan-based crowdfunding platforms that provide funding for businesses, referred to as the “European Crowdfunding Service Provider” (ECSP) label.76 The proposal is part of both the EU’s Capital Markets Union work programme and the Commission’s recent Fintech Action Plan.77

6.3The objective of the Regulation is to allow crowdfunding platforms to solicit investments from investors across the EU after being authorised to do so centrally by the European Securities & Markets Authority (ESMA). This, the Commission argues, would enable them to maximise economies of scale by expanding across national borders and increasing their ability to provide capital to European businesses.78 Authorisation as an ECSP by ESMA would be conditional on the platform meeting a number of organisational, governance and conduct requirements, but no specific capital buffers or other prudential requirements.

6.4However, platforms could only apply for the ECSP label if they do not already hold authorisation to provide crowdfunding services under national law (to avoid interfering in functioning domestic regulatory frameworks), or provide wider investment services under the Markets in Financial Instruments Directive (to avoid firms avoiding the stricter requirements of that Directive, which covers many more investment services than facilitating crowdfunding).79 The ECSP authorisation would also not cover peer-to-peer lending to consumers, which are already covered by specific legislation governing consumer credit,80 or any crowdfunding projects seeking to raise more than €1 million (£880,000), which is the point at which EU law requires a formal prospectus to be issued to prospective investors.81

6.5We have set out the substance of the proposal, and the restrictions on platforms that seek ECSP authorisation, in more detail in “Background” below.

6.6The implications of the proposal for the UK, in the context of Brexit, remain unclear. Under the terms of the proposed Regulation, the ESCP ‘passport’ would only be available to companies based in the EU. Although the Commission notes in the accompanying Impact Assessment that the withdrawal of the UK—as the EU’s largest hub for crowdfunding—“raises questions about the need for a (…) framework to assess the equivalence of a third country regime”,82 the draft legislation itself contains no provisions on equivalence mechanism to extend the passport to non-EU crowdfunding platforms.83 However, the proposal would permit EU-based platforms to delegate part of their operations to a third party outside the Union, provided it does “not impair materially” the crowdfunding service provider’s compliance with its obligations as an ESCP.

6.7The Government supports efforts to increase the reach of crowdfunding platforms across the EU, but has expressed concerns about the substance of the Commission proposal. The Economic Secretary to the Treasury (John Glen) submitted an Explanatory Memorandum84 on 27 March 2018, in which he lists a number of areas where the Government will seek changes to the legal text. These include the need to differentiate between investment- and loan-based crowdfunding, given their different business models; ensuring companies cannot use the ECSP regime to escape stricter domestic regulation when offering crowdfunding services; a larger role for domestic regulators in supervising the new regime; and the inclusion of proportionate prudential requirements for crowdfunding platforms as a pre-condition for their authorisation as an ECSP.85 With respect to the consequences of the proposal in the context of the UK’s EU exit, the Minister says that “the applicability of the proposed Regulation [after Brexit] will depend on the future relationship between the UK and the EU, which is subject to negotiations”.

6.8Given that the UK is home to 80 per cent of all crowdfunding activity in the EU, the proposal is clearly of political importance. The Minister’s Explanatory Memorandum sets out a number of substantial concerns about the content of the Commission proposal, with which we concur. Careful drafting will be necessary to ensure that the European crowdfunding regime cannot be used to circumvent domestic regulation aimed at protecting investors, which in itself will require a greater role for national authorities in supervising platforms with ECSP authorisation.

6.9Irrespective of the proposal’s substance, we cannot yet say whether the new Regulation will apply in the UK. This is due to both the uncertainty about the timetable for adoption of the legislation, and the Government’s continued ambiguity about the length of the post-Brexit transitional period (during which the UK will stay in the Single Market, and bound by all EU law).86 As a result, we do not know whether, and if so for how long, the UK and its crowdfunding industry might be covered by the new ECSP regime. Although it is unlikely the Regulation will take effect before early 2020, there is a distinct possibility that the ECSP regime will be binding on the UK during the transitional/implementation period.

6.10Moreover, the Government is pushing for an ambitious agreement to replace the current Single Market ‘passporting’ arrangements for various parts of the financial services industry. It is not yet known what provisions such an agreement could contain on continued regulatory alignment between the UK and the EU. The Government is pressing for mutual recognition of regulatory standards without legal harmonisation, whereas the EU has so far refused to countenance preferential market access for the UK other than through its established ‘equivalence’ regimes (which is not included in the Commission proposal for the Crowdfunding Regulation, although it could be introduced by the European Parliament or the Member States as part of the legislative process).87

6.11While both approaches have in common that neither side would be required to adopt the regulatory standards of the other party, the practical impact on cross-border flows of financial services would be very different. The UK is seeking a regime which operates on the basis of a general presumption of preferential market access unless there is a determination to the contrary (because of divergent regulatory outcomes); the remaining Member States envisage a regime where there is no general presumption of preferential market access for financial services. In the latter case preferential market access would be accorded only on a case-by-case basis and at the EU’s own discretion (and subject to unilateral revocation) under existing ‘equivalence’ regimes. In this case, reliance on such an arrangement—especially in areas where UK financial services providers have a large EU client base and therefore an economic interest in maintaining equivalence indefinitely—may lead to the Government having to keep in step with developments in EU regulation after Brexit, without a formal say over its substance.88

6.12Given the political and legal consequences of the final outcome of the Government’s negotiations with the EU in this area, over the coming months we will continue to monitor to what extent the UK may either, as a legal requirement or voluntary, continue aligning itself with EU financial services legislation so as to secure continued market access (including for its crowdfunding providers under the proposed ECSP Regulation).

6.13With respect to the Crowdfunding Regulation specifically, we ask the Minister to keep us informed of developments in the legislative process. We will consider in more detail its implications when the Minister is able to provide us with further information on the legislative process. We also ask the Minister to clarify whether the Government intends to push for the inclusion of an equivalence regime under the Regulation, so that the UK—if necessary—could apply to stay part of the ESCP regime after it leaves the Single Market (if such market access cannot be secured through a bilateral trade agreement).

6.14In the meantime, we retain the proposed Regulation under scrutiny and draw it to the attention of the Treasury Committee. We are content to clear the Directive amending MiFID II from scrutiny as it is consequential on the main Regulation and not independently politically important.

Full details of the documents

(a) Proposal for a Regulation on European Crowdfunding Service Providers (ECSP) for Business: (39550), 7049/18 + ADDs 1–3, COM(18) 113; (b) Proposal for a Directive amending Directive 2014/65/EU on markets in financial instruments: (39551), 7048/18 + ADDs 1–2, COM(18) 99.

Background

6.15Crowdfunding is a relatively new form of financing, where an online platform or intermediary connects investors—often individual savers—with small businesses and consumers looking for funding. The two main forms are investment-based crowdfunding, where investors buy shares or debt in a firm; and peer-to-peer (P2P) lending, where investors loan money directly to a firm or consumer.89

6.16In recent years, crowdfunding has emerged as a significant non-bank source of capital for companies and consumers in the EU. Across the Union there are now more than 500 crowdfunding platforms, but activity is heavily concentrated in the UK: it accounts for approximately 80 per cent of the entire EU crowdfunding market. In 2016, peer-to-peer business lending (including property loans) amounted to €3.5 billion (£3.1 billion), making it the largest market segment by volume. P2P consumer credit totalled just under €2 billion (£1.7 billion), while investment-based crowdfunding attracted investments worth approximately €750 million (£654 million).

6.17While opening up new channels of funding for the economy, crowdfunding also poses a number of risks to investors. Investments are often illiquid and high-risk, as there may not be a secondary market and the funding recipients are usually new companies with a high failure rate. Where the platform solicits investment from individual savers, there is also an information asymmetry that makes it difficult for investors to assess the risk they are taking with their money. Investor compensation schemes do not typically cover investments made through crowdfunding platforms, and in any event would not compensate for losses due to investment risk. Additionally, investors could lose out if the platform holds their assets but becomes insolvent. The crowdfunding sector’s financial stability risks are currently considered low, given the overall size of the market.

Existing EU and UK legislation that applies to crowdfunding

6.18Currently, there is no European legal framework which deals specifically for lending-based crowdfunding where the loan is provided to a business (as commercial lending is not regulated by the EU), while lending to consumers is regulated by the Consumer Credit Directive. The UK’s Financial Conduct Authority (FCA) launched a bespoke regulatory framework for peer-to-peer lending platforms in April 2014.90

6.19For investment-based crowdfunding, a number of Member States use the framework created by existing EU legal frameworks, including primarily MiFID, but also the Payment Services Directive or the Alternative Investment Fund Managers Directive). Approximately 40 per cent of investment-based platform operators in the EU already hold a MiFID licence (either directly or via a parent firm). The UK does not have a bespoke regime for investment-based crowdfunding, but has implicitly regulated the underlying activities under MiFID II, with the regulator deciding which specific permissions are needed based on the an individual platform’s operations.

A new European regulatory approach to crowdfunding

6.20The Commission in March 2013 published a Green Paper on the “long-term financing of the European economy”.91 This indicated the possibility of further measures aimed at “developing or promoting other ‘non-traditional’ sources of finance”, including “internet-based sources of funding like crowdfunding”. In response, the EU’s Heads of State and Government in June 2013 called on the Commission to “develop alternative sources of financing in close cooperation with Member States”.92

6.21The EU market for this new type of financing remains underdeveloped compared to other major economies.93 In October 2013, the European Commission launched a dedicated consultation on the “potential added value of EU action” in the area of crowdfunding.94 This was followed in March 2014 by a policy paper95 which mentioned the potential of an ‘EU quality label’ for crowdfunding platforms, an initiative for which the then-Coalition Government told our predecessors at the time that a case “[had] not been made” given the embryonic state of the sector.96 That year also saw the establishment of the ‘European Crowdfunding Stakeholder Forum’ to discuss matters of interest to the industry and regulators at EU-level.97 It has not met since February 2016.

6.22The European Securities & Markets Authority (ESMA) issued advice on investment-based crowdfunding in December 2014.98 It concluded that many platforms were deliberately structuring their business models to avoid regulatory requirements under MiFID II, leading to “significant risks to investors” not addressed at EU level. It also argued that the lack of a standardised European regulation hampered crowdfunding platforms from offering their services across borders within the Single Market, raising compliance and operational costs and restricting opportunities for expansion.

6.23In September 2015 the European Commission published an Action Plan for a European “Capital Markets Union” (CMU).99 The threefold objective of the CMU was to provide new sources of funding for EU businesses, help increase opportunities for yield for savers, and make the economy more resilient by making Europe’s economy less reliant on bank lending. The Action Plan set out a number of policy measures to achieve these ambitions, including an undertaking to assess the need for further policy measures in the area of crowdfunding, with a view to developing the “best means to enable the development of this new funding channel across the [EU]”.

6.24In May 2016 the European Commission published a second, more detailed policy paper on crowdfunding.100 It concluded that this form of alternative finance could make a “significant contribution” to the CMU objective mobilising new sources of capital for European businesses, and that it would further consider its policy approach to crowdfunding “as part of our broader approach to FinTech and the digitalisation of financial services”. However, it concluded that, “given the predominantly local nature of crowdfunding” and the need for the sector to have “space to innovate and develop”, there was “no strong case for EU level policy intervention at this juncture”.

6.25In November 2016 the Commission tendered for a study on “assessment of the potential for development of cross-border crowdfunding business, and how existing EU legislation applies and interacts with existing and upcoming national regulatory frameworks in cross-border situations”. As part of the mid-term review of its 2015–2019 Capital Markets Union Action Plan, the Commission launched a consultation in March 2017 on ways in which the EU should approach ‘fintech’, including crowdfunding.101 This asked stakeholders, among other things, how the EU could “support further development of […] non-bank financing, i.e. peer-to-peer/marketplace lending [and] crowdfunding”. The Commission said the responses to this consultation showed broad support for regulatory intervention at EU-level to:

6.26By October 2017 the Commission had therefore decided to press ahead with a legislative proposal on an EU-level framework for crowdfunding and P2P platforms.102 That month, it stated such a framework would enable platforms to become a more important source of market-based financing by allowing them to seize opportunities for economies of scale offered by the Single Market as a whole. The Commission argues the case for EU-level intervention changed because, since May 2016, it had “gathered additional evidence on the demand for cross-border activity and on the barriers in the Single Market through stakeholder consultations and external studies”. It also concluded that the concentration of the European crowdfunding sector in a few Member States only had “underlined the need to make this funding method available more widely, notably for the benefit of fund seekers and investors in smaller Member States”. It identified three possible policy options, each of which required some level of regulatory harmonisation:

6.27In November 2017 the European Commission presented the policy options it had identified to the Member States. Most of them “supported a regulatory approach at the EU-level” for crowdfunding, although two Member States—including the UK—“were sceptical about the usefulness of EU legislation in this field.”103 The UK Government’s principal objection to the initiative was that

“Member States have been best placed to determine how to balance the need for regulation to protect consumers, without being overly restrictive and preventing viable companies from accessing funds and firms from innovating; as markets are currently domestically focused, a bottom-up approach has seemed most logical.”

6.28The Treasury also raised a number of specific concerns with the Commission, namely:

The Commission proposal

6.29The Treasury’s concerns notwithstanding, the European Commission presented a proposal to establish a voluntary pan-EU regulatory regime for crowdfunding service providers in March 2018. It was part of a larger ‘Action Plan’ on fintech, which announced a number of “targeted initiatives for the EU to embrace digitalisation of the financial sector”.104

6.30The policy option chosen by the Commission (see paragraph 6.24 above) is a stand-alone voluntary European crowdfunding regime. This would enable platforms to apply for the status of “European Crowdfunding Service Provider” (ECSP), which would allow a firm to provide both crowdfunding and peer-to-peer lending in their home EU country, and on a cross-border basis in any other Member State (the so-called ‘passport’). It would exist in parallel to existing national regulatory regimes, but a firm could only be authorised to perform crowdfunding services under either domestic law105 or the new ECSP Regulation. A licence from a national regulator, with the attendant regulatory requirements as prescribed by domestic law, would therefore preclude a platform from seeking authorisation to use the ECSP ‘passport’.

6.31The Commission dismissed the option of a more prescriptive regulatory approach that would have brought crowdfunding within the EU’s harmonised rulebook for financial services, because this was “not as cost effective […] while achieving similar results in terms of integrity and transparency” as its chosen approach, especially as it would have required the EU to regulate credit intermediation for business customers for the first time.

Details of the Commission proposal

6.32As noted, the Regulation is not a harmonising proposal, in the sense that it would not replace national rules on crowdfunding where they exist in the Member States.106

Parallel EU and domestic crowdfunding regimes

6.33Under the terms of the proposal, a crowdfunding service provider could choose to either provide or continue providing services on domestic basis under applicable national law (including where a Member State chooses to apply MiFID II to crowdfunding activities), or seek authorisation to provide crowdfunding services as an ECSP under the proposed Regulation across the EU (including in its home Member State).

6.34To ensure firms have to select either their domestic regulatory regime or the new EU passport, the proposal stipulates that authorisation under the Regulation cannot be granted to crowdfunding or P2P platforms which:

6.35The legal consequence is that the new EU-level framework would be available only to firms that exclusively provide crowdfunding services, and prevent platforms from being covered by overlapping national and EU regulations concurrently. The Commission has proposed consequential amendments to the second Markets in Financial Instruments Directive (MiFID II) that would explicitly exclude any crowdfunding platforms subject to the new EU-level regulatory regime from the scope of that Directive.

Crowdfunding services covered by the ECSP regime

6.36The proposal only applies to those crowdfunding services entailing a financial return for investors, i.e. equity and debt crowdfunding, where the investors purchase a stake in the success of a company or issue it with a loan agreement, respectively. The ECSP authorisation would therefore not cover donation- and rewards-based crowdfunding. The Commission has proposed a legal definition of crowdfunding services as “the facilitation and granting of loans” and “the placing without firm commitment of transferable securities and the reception and transmission of client orders”. These definitions are purposefully restrictive, in a bid to mitigate the risk of regulatory arbitrage for more complex financial services—such as portfolio management and investment advice—which platforms sometimes add on top of these services.107 In this way, providers could not escape more onerous regulation for these services under MiFID II by applying for authorisation as an ECSP.

6.37However, within those parameters the Regulation would still not apply to peer-to-peer lending where the recipient of the funding is a consumer, as the provision of consumer credit is regulated separately.108 Similarly, it would not apply to crowdfunding offers for which a platform wants to raise more than €1 million (£880,000), the threshold above which it is required for the business to issue a formal prospectus to investors under EU law.109

The role of the European Securities & Markets Authority

6.38In order to benefit from the ECSP ‘passport’ created by the Regulation, a platform would have to apply for authorisation from the European Securities & Markets Authority (ESMA).

6.39ESMA could only grant a licence if the applicant meets a number of substantive governance, organisational and conduct requirements, including avoidance of conflicts of interest, safekeeping of customers’ assets, and dispute resolution. However, the Commission has not proposed that ECSPs should hold any regulatory capital of their own, given that the platforms operate “services that do not warrant prudential treatment for minimal operational and continuity risk” and do not pose a risk to financial stability, given the relatively small volume compared to capital markets as a whole. Payments for crowdfunding transactions must take place via entities that are authorised under the Payment Service Directive (PSD) and, therefore, subject to the 4th Anti-Money Laundering Directive (AMLD), whether the payment is provided by the platform itself or by a third party.110

6.40EMSA would maintain a public register of all successful applications, whose authorisation would entitle them to carry out crowdfunding activities in any EU Member State without needing to seek permission from domestic regulators or establish a physical presence anywhere but their host Member State.

Investor protection

6.41While marketing of crowdfunding services under the ECSP label would remain subject to the national legislation of each Member State in which it is carried out, the Regulation would at a minimum require platforms to undertake an “initial assessment of appropriateness of a potential client”, offer investors the possibility of “[simulating] their ability to bear losses”. Crowdfunding providers would also have to issue a Key Investment Information Sheet to investors, with details of the investment offer for either equity- or loan-based crowdfunding campaigns for which they are seeking contributions.111

Recognition of non-EU crowdfunding regimes

6.42The European Commission has noted that Brexit could require an ‘equivalence’ mechanism to allow British crowdfunding intermediaries to continue servicing EU-based customers, because so much crowdfunding activity in Europe is carried out through UK-based platforms:112

“Without a functioning third country regime, the departure of the UK from the EU poses the risk of leaving the EU with even lower scale to deal with the cross-border provision of early stage financing for businesses across Europe. It also raises questions about the need for a more uniform approach to provide a framework to assess the equivalence of a third country regime.”

6.43However, the Regulation as proposed by the Commission does not make provision for the extension of the ‘passport’ to non-EU crowdfunding platforms, or otherwise cover non-EU intermediaries.113 As such, British platforms would not be able to apply after the UK leaves the Single Market (whether in March 2019 or at the end of any subsequent transitional period under the Withdrawal Agreement), and any that might have successfully applied for it by then will automatically lose their passport when EU law ceases to apply to the UK. The proposal does permit EU-based platforms to delegate part of their operations to a third party outside the Union, provided it does “not impair materially the quality of the crowdfunding service providers’ internal control and the ability of ESMA to monitor the crowdfunding service provider’s compliance with all obligations laid down in this Regulation”.

The Government’s view

6.44In its initial comments on the Commission’s broad approach to regulation of crowdfunding, circulated in November 2017 (see paragraph 6.26 above), the Treasury warned that an ‘opt-in’ regulatory regime, where holding a EU licence would allow platforms to avoid having to hold a domestic licence, could lead to problems if the EU-level framework was “perceived as less strict than national regimes”, as this could incentivise companies to apply for an EU licence to avoid existing national regulations.

6.45Following formal publication of the legislative proposal, the Economic Secretary to the Treasury (John Glen) submitted an Explanatory Memorandum on the proposal on 27 March 2018.114 In it, he noted that the Government believes that “increased cross-border activity is one possible way that crowdfunding platforms could continue to grow and support small businesses”, but—as home to the EU’s largest crowdfunding industry—it also has a “number of concerns” with the proposal. These largely reflect the concerns the Treasury already expressed to the Commission in its feedback in November 2017.

6.46In summary, the Government will seek the other Member States’ support for amendments as follows:

6.47The Government has also expressed concern about the proposed limit of €1 million (£885,000) for fundraisers that are carried out under the ECSP label. It says this limit would mean that the large majority of platforms currently operating in the UK would be dual-regulated if they sought to apply for authorisation under the new EU-wide framework, as any crowdfunding campaigns seeking investment above that threshold would fall outside the scope of the EU-wide regime and remain regulated by the FCA.115 It is not clear whether it will press for this limit to be raised, or removed altogether.

6.48With respect to the consequences of the proposal in the context of Brexit, the Minister says that there “are no direct EU-exit implications”, because once the UK has left the EU (or, more pertinently, the Single Market at the end of the post-Brexit transitional period), “the applicability of the proposed Regulation will depend on the future relationship between the UK and the EU, which is subject to negotiations”. He also refers to the Commission’s Impact Assessment, which states that after the UK leaves the EU, ‘third country’ rules may be required to ensure that crowdfunding services are not interrupted.

Previous Committee Reports

None. This is a new proposal for legislation.

75 €1 = £0.88415 or £1 = €1.13103 as at 28 February.

76 See Commission document COM(18) 133.

77 The Committee will consider the European Commission’s Fintech Action Plan and its latest progress report on the Capital Markets Union separately in the near future, when it has received the Explanatory Memoranda from the Treasury setting out the Government’s views and position.

78 The ECSP regime would not apply to crowdfunding platforms which lend money to consumers, as such activity is regulated separately by the Consumer Credit Directive.

79 To ensure authorization under the ECSP Regulation and MiFID II are mutually exclusive, the proposed Regulation is accompanied by a draft Directive making consequential amendments to MiFID II.

80 In particular, the Consumer Credit Directive and the Mortgage Credit Directive.

81 See Regulation 2017/1129.

82 See Commission Impact Assessment (SWD(2018) 562), p.37.

83 ‘Equivalence’ in EU financial services legislation allows the European Commission, with the support of a qualified majority of Member States, to recognise the regulatory regime of a non-EU country in a specific area of financial services as ‘equivalent’. Such decisions are made at the EU’s sole discretion and can be unilaterally revoked with a month’s notice. The effect of ‘equivalence’ differs for each sector; for example, it can grant preferential market access or trigger prudential reliefs for EU-based financial services providers that deal with providers in the ‘equivalent’ country.

84 Explanatory Memorandum submitted by HM Treasury (27 March 2018).

85 We have described the Government’s concerns in more detail in “Background” below.

86 Although the other Member States have proposed the transitional arrangement should end on 31 December 2020, the Government’s position is that “the Period’s duration should be determined simply by how long it will take to prepare and implement the new processes and new systems that will underpin the future partnership”.

87 See “x” above on the possibility of an equivalence regime for third countries under the Regulation.

88 The Committee remains to be persuaded that the other Member States are likely to accept the UK’s proposal for mutual recognition (given their interest in having regulatory oversight over the financial infrastructure and systems that underpin their economy, even if it comes at a higher cost to businesses), or that this new arrangement—given its unprecedented nature and far-reaching regulatory and economic consequences—could be negotiated and take effect by January 2021, when the UK is scheduled to leave the Single Market and lose its current market access rights.

89 There are also other varieties, including the trading of invoices, as well as reward- and donation-based crowdfunding.

90 See FCA Policy Statement PS14/4, “The FCA’s regulatory approach to crowdfunding over the internet, and the promotion of non-readily realisable securities by other media” (March 2014).

91 Commission document COM(2013) 150, “Green Paper: Long-term financing of the European economy”.

92 European Council conclusions of 27–28 June 2013.

93 See Commission Impact Assessment SWD(2018) 56, p. 18.

94 Commission consultation “Crowdfunding in the EU—Exploring the added value of potential EU action” (3 October 2013).

95 Commission document COM(2014) 172, “Unleashing the potential of Crowdfunding in the European Union”.

96 Explanatory Memorandum submitted by HM Treasury (April 2014).

97 At present, both NESTA and Peer-to-Peer Finance Association (P2PFA) are UK members of the Forum. It appears likely they will forfeit their places when the UK ceases to be a Member State as members must be “organisations established in a Member State of the European Union”.

98 https://www.esma.europa.eu/sites/default/files/library/2015/11/2014–1378_opinion_on_investment-based_crowdfunding.pdf.

99 See Commission document COM(2015) 468. For more information on the CMU, see the previous Committee’s Report of 21 July 2015. In parallel, the Commission also pursued further regulatory measures to stabilise the European banking sector (the so-called ‘Risk Reduction Measures’) and improve its capacity to lend by improving the transparency of the securitisation of debt instruments, and creating a new EU legislative framework for a special type of security called a ‘covered bond’. The proposal for the latter was tabled in March 2018, which we consider in a separate chapter in this Report.

100 See SWD(2016) 154, “Crowdfunding in the EU Capital Markets Union”.

101 European Commission consultation, “FinTech: a more competitive and innovative European financial sector” (23 March 2017).

102 http://ec.europa.eu/info/law/better-regulation/initiatives/ares-2017–5288649_en.

103 http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupMeetingDoc&docid=9267.

104 See Commission document COM(2018) 109.

105 Many Member States regulate crowdfunding under their national transposition of existing EU, such as MiFID II, the Payment Services Directives or the AIFMD.

106 However, as a Regulation, it would—once adopted—not provide individual EU countries with any leeway in setting additional conditions before platforms with authorisation under the legislation, even if established in another Member State, could provide services within their territory.

107 The draft Regulation also limits the scope of the new framework to crowdfunding platforms operating a primary market for investments. Should investors wish to sell their investments via a secondary market, the platform is limited to providing a “bulletin board” which facilitates contact between investors but does not itself provide a platform for the execution of trades.

108 ‘Consumer’ would be defined as in article 3 of the Consumer Credit Directive (Directive 2008/48/EC): “A natural person who (…) is acting for purposes which are outside his trade, business or profession”.

109 See the Prospectus Directive (Directive 2003/71/EC), which will be replaced by the Prospectus Regulation (Regulation 2017/1129) as of 21 July 2019.

110 In the longer term, the Commission will assess the necessity and proportionality of subjecting crowdfunding service providers to obligations for compliance with the national provisions implementing Directive (EU) 2015/849 in respect of money laundering or terrorism financing and adding such crowdfunding service providers to the list of obliged entities for the purposes of Directive (EU) 2015/849.

111 file:///Users/fnoppert/Downloads/PART-2018–141058V1%20(6).pdf

112 See Commission Impact Assessment (SWD(2018) 562), p. 36.

113 Article 4 of the proposed Regulation states that only crowdfunding platforms “provided by legal persons that have an effective and stable establishment in a Member State of the Union” can apply for the new ‘passport’. As a Single Market measure, the legislation is expected to be extended to Norway, Iceland and Liechtenstein in due course as well.

114 Explanatory Memorandum submitted by HM Treasury (27 March 2018).

115 According to the Commission, the average deal size for investment-based crowdfunding platforms “is well over €600,000” (£524,000).



Published: 1 May 2018