EU Crowdfunding Regulation: Financing tools for Greek and other EU SME’s

The regulation establishes a unified legal framework for crowdfunding service providers (CSPs) operating public digital platforms to facilitate potential investors or lenders and companies (project owners) seeking funds through loans (lending-based crowdfunding) Match or acquire transferable securities (investment-based crowdfunding).

It allows platforms to apply for an EU passport based on a single set of rules, which makes it easier for them to offer their services across the EU with a single authorisation.

The new rules are expected to increase the availability of this innovative form of finance, which will help companies both in Greece and in other EU countries seeking alternatives to bank financing. Investors on crowdfunding platforms, meanwhile, will benefit from an aligned and enhanced investor protection framework, based on:

i.clear rules on information disclosures for project owners and crowdfunding platforms.
ii.rules on governance and risk management for crowdfunding platforms.
iii.strong and harmonised supervisory powers for national authorities overseeing the functioning of crowdfunding platforms.

The Regulation contains organisational and operational requirements which include:

Restrictions on inducements (CSPs shall not pay or accept any remuneration, discount or non-monetary benefit for routing investors’ orders to a particular crowdfunding offer made on their platform or a third-party platform);
Credit risk assessment of the crowdfunding project and Project Owner;
Minimum due diligence of the Project Owner (no criminal record and no establishment in a non-cooperative jurisdiction or high-risk country);
Setting up of a complaints handling procedure;
Conflicts of interests avoidance and prevention rules;
Specific rules when the CSP is providing services to investors consisting in individual portfolio management of loans.

The Regulation provides investor protection measures, which vary depending on whether the investor would qualify as “sophisticated” or “non-sophisticated”, according to the criteria and procedure set forth in Annex II of the Regulation.

These measures include:

Fair, clear and not misleading marketing communications;
Entry knowledge test and simulation of the ability to bear loss for non-sophisticated investors;
A 4-day pre-contractual reflection period for non-sophisticated investors;
A Key Investor Information Sheet (KIIS), to be provided by the CSP, but prepared by the Project Owner, to all prospective investors, which must contain the information set out in Annex I and the disclaimer and risk warning set out in Article 23 of the Regulation. The Project Owner is responsible for the information set out in the KIIS, but the CSP must have procedures in place to verify that information and must raise omissions, inaccuracies or mistakes with the Project Owner. The KIIS does not need to be approved by the NCA;
Bulletin boards. A CSP may operate a bulletin board which allows clients to advertise interest in buying and selling loans, transferable securities or admitted instruments for crowdfunding purposes that were originally offered on the crowdfunding platform, provided that the bulletin board shall not be used to bring together multiple third-party buying and selling interests in a way that results in a contract. In other words, the bulletin board may not consist of a matching system that executes client orders on a multilateral basis (i.e. operating a MTF or OTF within the meaning of MiFID II).