Europe becomes reality for crowdfunding

On the 18th of December 2019, the European Council, European Commission and European Parliament have come to an agreement on new regulation for crowdfunding at European level.

The discussions that were ongoing for several months had the main objective to boost alternative financing of businesses by unifying crowdlending and crowdequity regulation across the 28 Member States of the European Union. The discussions were part of the Capital Market Union initiatives.

The result is a uniform set of criteria for European Crowdfunding Service Providers  for Business (ECSP), which replaces local ones. It allows any platform holding an ECSP status to operate in all EU countries with no additional status to be required.

In an industry where platforms mostly operate locally, the new regulation should allow more platforms to operate at European level and foster cross border financing of SMEs.

“So far, cross border operations has been the exception, not the norm. Setting up our cross border lending operations in France, Italy, Spain, the Netherlands and Germany has been an enormous amount of regulatory work for us, with one or two regulators per country and different rules each time we launch a new country. The ECSP will have a huge impact on our capacity to open new markets within the European Union. We will gain a lot of time and most of all regulatory visibility.” Olivier Goy – founder of October.

The ECSP will be a mandatory status for all lending and equity platforms, not an optional supra national status. This new status will be delivered by each country’s regulatory body. It will be focused only on Lending and Equity crowdfunding for businesses. Reward based crowdfunding or Lending to private individuals will not be part of the new regulation.

What will change compared to the French current IFP status:

  • Project owners will be allowed to receive financing up to 5 million euros over 12 months, compared to 2,5 million euros per project in France today.
  • The new regulation creates a new status that does not exist in France: Sophisticated vs non sophisticated investors with different rights on the platform:
    • Non sophisticated will have to undergo a test to assess their knowledge on the risks of financing companies, will be alerted on the risks and will have to explicitly accept them, will not be allowed to finance a project for more than €1,000 or 5% of their assets. Non sophisticated Lenders will have a 4 days reflection period to cancel their investment or loans compared to 0 today.
    • Sophisticated investors will not have any investment limits. Today all lenders have a limit of 2,000 per project but no limit on the total amount lent or invested.

“One of the major impact of the new regulation for October will be the ability to open our platform to retail lenders based in Germany. On the other hand, the new regulation allows our international community of retail investors from France, Spain, Italy and The Netherlands to lend to SMEs projects originated in Germany” comments Patrick de Nonneville – Chief Operating Officer at October.