Europe Aligns Crowdfunding Laws

By Gaia Freydefont

Unified European crowdfunding laws have now come into effect, with European regulators allowing platforms to be licensed at the member state level but able to issue securities to investors across the EU.

Exponential growth of crowdfunding across the EU in recent years has moved the European Parliament to align its crowdfunding legislation by approving a set of common rules on EU crowdfunding, aimed at boosting crowdfunding platforms and providing protection for investors.

The regulation entered into force on November 9th, 2020, but applies within the EU from November 10th, 2021, following a transitional period of 12 months.

It details a set of new rules to be applied across the EU for the provision of crowdfunding services, including investment and lending based crowdfunding platforms related to business financing.

The regulation outlines requirements relating most notably to investor protection, prudential obligations and the provision of ancillary services, as it is intended to provide entrepreneurs with trust that certain minimum regulatory standards will be established.

The new investor protection measures set out in the Regulation could potentially have a significant impact on crowdfunding businesses, as it is anticipated they will widely increase the accessibility of crowdfunding as an innovative form of finance, helping companies which are seeking financial alternatives to banks.

Setting a minimum regulation for all crowdfunding platforms in the EU which are aiming to raise funds from investors across Europe is hoped to invigorate investment and growth across various sectors.

However, any increased form of regulation can potentially mean increased costs and lengthy government processes for platforms.

This is hoped to be cancelled out through increased investor confidence in the crowdfunding market through the implementation of more thorough due diligence and protections.

Investors involved in crowdfunding platforms will also make the most of an aligned and amplified investor protection structure.

Small and medium sized companies may really benefit from a more regulated structure which protects consumers and investors, ultimately boosting their confidence in investing in more crowdfunding projects and opportunities.

The regulation also provides platforms with an opportunity to apply for an EU passport on the basis of a sole regulation, massively easing the process by which platforms are able to offer their services.

This also means crowdfunding platforms are able to be financed by a much broader base across the EU, thereby widening their potential pool of investors.

Although the UK is home to the majority of crowdfunding platforms in Europe, the UK government has resolved for crowdfunding and alternative finance companies to continue operating under its existing regulation.

However, with the UK comprising of over 75% of the crowdfunding sector across the EU, there are likely going to be positive implications for the UK as crowdfunding in Europe continues to grow.

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