New opportunities for investors from the autumn: crowdfunding

1. September 2021 | Reading Time: 3 Min

Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European providers of crowdfunding services and amending Regulation (EU) 1129/2017 and Directive (EU) 2019/1937 (“European Regulation 2020/1503”, hereafter the “Regulation”) will be applied directly in all Member States of the European Union, including Romania, from 10 November 2021.

Consequently, as of November companies seeking to attract financing will be able to use the crowdfunding system, which will allow them to obtain funds from any natural or legal person looking to invest.

According to the new Europe-wide regulations, crowdfunding platforms have been removed from the scope of Directive 2014/65/EU on markets in financial instruments, meaning they are not subject to capital market and investment service rules.

1.Types of crowdfunding

The Regulation regulates the following types of crowdfunding:

  • the granting of loans (debt crowdfunding);
  • investments in the share capital of the project company (equity crowdfunding).

According to the new regulations, only financing offers with a value of up to EUR 5 million for a period of 12 months per project fall under the scope of the Regulation.

The Regulation further stipulates that crowdfunding based on rewards and donations is not available to project developers who are consumers within the meaning of art. 3 letter (a) of Directive 2008/48, where a ‘consumer’ is defined as a natural person who while undertaking operations covered by this Directive acts for purposes unrelated to his/her trade, business or profession.

2. Operating conditions

Crowdfunding platforms may be provided only by legal entities established in the European Union that have been authorised as providers of crowdfunding services (in Romania, by the Financial Supervision Authority, ASF) and fulfil the obligations established by the Regulation with respect to the following:

  • due diligence requirements (lack of criminal record for all individuals involved in the administration of the potential provider of crowdfunding services and shareholders holding 20% or more of the share capital or voting rights);
  • the establishment of guarantees (suppliers always have prudential guarantees that are at least equal in value to the largest of the following: EUR 25,000 or a quarter of the previous year’s fixed overheads,revised annually, which will include the cost of administering the loans for a period of three months, where the crowdfunding service provider also facilitates the granting of loans;
  • investor information (a file containing essential information relating to the investment will be made available to potential investors);
  • testing investor knowledge to ensure that potential unsophisticated investors understand the level of risk associated with crowdfunding;
  • reporting to the competent authority (in Romania, the ASF), etc.

Moreover, crowdfunding service providers must demonstrate that the company seeking to obtain financing has not infringed any commercial, insolvency, financial services, anti-money laundering, anti-fraud or anti-liability legislation.

For a period of 24 months beginning on 10 November 2021, if in a Member State the threshold for the total cost of the publication of a prospectus in accordance with Regulation (EU) 2017/1129 is less than EUR 5,000,000 then said Regulation shall apply in that Member State only in respect of crowdfunding tenders for which the total value exceeds the value of the aforementioned threshold.

Source: Regulation (EU) 2020/153 of the European Parliament and of the Council of 7 October 2020 on European providers of crowdfunding and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 and Directive (EU) 2020/1504 of the European Parliament and of the Council of 7 October 2020 amending Directive (EU) 2014/65 on markets in financial instruments, both published in the Official Journal of the European Union no. L 347/20.10.2020.

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