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Paul Foley Law | EU Crowdfunding Regulation: latest

Paul Foley
New EU Regulation creates a harmonised European legal regime for crowdfunding

REGULATION (EU) 2020/1503 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937) (“the EU Crowdfunding Regulation” or “Regulation”)

(Updated August 2022)

The EU Crowdfunding Regulation had effect as and from the 10.11.2021. The Regulation will allow crowdfunding service providers (CSPs) authorised in one member state, to passport their services, for which they are authorised, into other EU Member States on the basis of the one authorisation (Article 18 of the Regulation).

The Regulation will allow CSPs who are not yet authorised under the Regulation to continue, in accordance with the applicable national law, to provide crowdfunding services that are included within the scope of the Regulation, until 10 November 2023 or until they are granted an authorisation referred to in Article 12, whichever is sooner. There are no passporting rights pre- EU Crowdfunding Regulation Authorisation. (Article 48(1) of the Regulation as amended).

Who may provide Crowdfunding services

The provision of crowdfunding services generally involves:

  • the project owner who proposes the project to be funded

  • investors who fund the proposed project, and

  • an intermediating organisation in the form of a crowdfunding service provider (CSP) that brings together project owners and investors through an online platform.

Under Article 3 of the Regulation, crowdfunding services must only be provided by legal persons that are established in the Union and that have been authorised as CSPs in accordance with Article 12 of the Regulation.

What Crowdfunding Services are regulated

Two crowdfunding services are regulated:

the matching of business funding interests of investors and project owners through the use of a crowdfunding platform and which consists of any of the following activities:

  1. the facilitation of granting of loans; ‘loan’ means an agreement whereby an investor makes available to a project owner an agreed amount of money for an agreed period of time and whereby the project owner assumes an unconditional obligation to repay that amount to the investor, together with the accrued interest, in accordance with the instalment payment schedule;

  2. the placing without a firm commitment basis, as referred to in point (7) of Section A of Annex I to Directive 2014/65/EU (MiFID II), of transferable securities and admitted instruments for crowdfunding purposes issued by project owners or a special purpose vehicle, and the reception and transmission of client orders, as referred to in point (1) of that section, in relation to those transferable securities and admitted instruments for crowdfunding purposes (Article 2(1) of the Regulation).

Where the Crowdfunding Regulation does not apply

The Regulation does not apply to

(a) crowdfunding services that are provided to consumers;

(b) to other services related to those provided to consumers (article 3(a) of Directive 2008/48/EC); and

(c) crowdfunding offers with a consideration of more than EUR 5,000,000, calculated over a period of 12 months.

The Regulation specifies how this is calculated for each of the business models regulated (Article 1 of the Regulation).

Limits on Crowdfunding Offers made by a particular project owner

The threshold for a total consideration for crowdfunding offers made by a particular project owner is set at €5,000,000, which is the threshold used by most Member States to exempt offers of securities to the public from the obligation to publish a prospectus. (Recital (16) of the Regulation).

Prudential Requirements (Regulatory Capital) required under the Directive

The regulatory capital required of the crowdfunding service provider under Article 11, must be equal to an amount of at least the higher of the following:

€25,000; and one quarter of the fixed overheads of the preceding year, reviewed annually. This amount in broad terms can take one of the following forms:

  1. Own funds, consisting of Common Equity Tier 1 items referred to in Articles 26 to 30 of Regulation (EU) No 575/2013 after the deductions in full, pursuant to Article 36 of that Regulation, without the application of threshold exemptions pursuant to Articles 46 and 48 of that Regulation;

  2. an insurance policy covering the territories of the Union where crowdfunding offers are actively marketed or a comparable guarantee; or

  3. a combination of points (a) and (b). (Article 11 of the Regulation).

Requirements for authorisation under Article 12 of the Regulation

In addition to the Regulation, the applicant for an authorisation will need to have taken into account, the European Union (Crowdfunding) Regulations 2021 (S.I. No. 702 of 2021) (the Regulations), Commission adopted RTS under Article 12 and other Commission adopted Regulatory Technical Standards (RTSs) referred to below.

The applicant to the Central Bank of Ireland will generally require to be an Irish registered company. With the completed application form, the main documents that will need to be provided to the Central Bank of Ireland are:

  1. a programme of operations setting out the types of crowdfunding services and of the crowdfunding platform that it intends to operate, including where and how crowdfunding offers are to be marketed;

  2. a description of the governance arrangements and internal control mechanisms;

  3. a description of the systems, resources and procedures for the control and safeguarding of the data processing systems;

  4. a description of the operational risks;

  5. a description of the prudential safeguards in accordance with Article 11 and proof that the prospective crowdfunding service provider meets the prudential safeguards in accordance with Article 11 (Prudential Requirements);

  6. a description of the business continuity plan. Business continuity is regulated by Article 12(2)(j) and the Commission RTS related to business continuity adopted under Article 12(16). Business continuity is typically an element of the managed services provided to a CSP by a provider of such services;

  7. the identity of the natural persons responsible for the management, and proof that the natural persons are of good repute and possess sufficient knowledge, skills and experience to manage the prospective crowdfunding service provider (see Article 12(3);

  8. a description of the internal rules to prevent persons referred to in the first subparagraph of Article 8(2) from engaging, as project owners, in crowdfunding services offered by the prospective crowdfunding service provider. The Article 8 requirements on conflicts of interest are supplemented by the Commission adopted RTS under Article 8(7) of the Regulation;

  9. a description of the outsourcing arrangements. Outsourcing is regulated by Article 9 of the Regulation and extensive Central Bank of Ireland Cross Industry Guidelines on Outsourcing;

  10. a description of the procedures to handle complaints from clients. Complaints handling is regulated by Article 7 and Commission adopted RTS under Article 7(5) of the Regulation;

  11. whether the applicant intends to provide payment services itself or through a third party, under Directive (EU) 2015/2366 (PSD2), or through an arrangement in accordance with Article 10(5) of this Regulation (Article 10);

    Where asset safekeeping services and payment services are provided, CSPs must inform their clients of: (a) the nature and terms and conditions of those services, including references to the applicable national law; (b) whether those services are provided by them directly or by a third party (Article 10(1)). Where CSPs carry out payment transactions related to transferable securities and admitted instruments for crowdfunding purposes, they must deposit the funds with one of the following entities: (a) a central bank; or (b) an EU authorised credit institution (Article 10(2)).

    Transferable securities or admitted instruments for crowdfunding purposes offered on a crowdfunding platform, and which can be registered in a financial instruments account opened in the name of an investor or which can be physically delivered to a custodian, must be held in custody by the CSP or by a third party. An entity providing custody services must hold an authorisation in accordance with Directive 2013/36/EU or 2014/65/EU (Article 10(3)).

    A CSP may itself, or through a third party, provide payment services provided that the CSP itself, or the third party, is a payment service provider in accordance with Directive (EU) 2015/2366 (PSD2) (Article 10(4));

  12. a description of the procedures to verify the completeness, correctness and clarity of the information contained in the key investment information sheet (KIIS)(Article 23). The content of the KIIS is extensively regulated by Article 23, Annex 1 of the Regulation and the Commission adopted RTS under Article 23 (16) and the Annex to the RTS. Competent authorities of the Member State where the CSP authorisation was granted, may require an ex ante notification of a KIIS least seven working days before making it available to prospective investors (Article 23(14)).

  13. a description of the prospective CSP's procedures in relation to investment limits for non-sophisticated investors referred to in Article 21(7) (Article 21 - Entry knowledge test and ability to bear loss).

    Onboading non-sophisticated investors is regulated bv Article 21 and the Commission adopted RTS under Article 21(8) (Entry Knowledge Test). This means, assessing by means of a questionnaire whether and which crowdfunding services offered are appropriate, including requiring information from non-sophisticated investors about their experience, investment objectives, financial situation and basic understanding of risks involved in investing in general and in investing in the types of investments offered on the crowdfunding platform, referred to in Article 21(1) and (2), of the Regulation (Article 21(2)).

    Additionally the crowdfunding platform will need to enable non-sophisticated investors simulate their ability to bear loss, calculated as 10% of their net worth, based on the following information:

    (a) regular income and total income, and whether the income is earned on a permanent or temporary basis;

    (b) assets, including financial investments and any cash deposits, but excluding personal and investment property and pension funds;

    (c) financial commitments, including regular, existing or future commitments. More detail on the functionality of the tool is provided by other paragraphs of Article 21 and the RTS under Article 21(8) (Article 21(5)).

    Where prospective non-sophisticated investors do not provide the information required by Article 21(2), or where CSPs consider, on the basis of the information received, that the prospective non-sophisticated investors have insufficient knowledge, skills or experience, CSPs must inform those prospective non-sophisticated investors that the CSP services may be inappropriate for them and issue them a risk warning. That risk warning must clearly state the risk of losing the entirety of the money invested. Prospective non-sophisticated investors must expressly acknowledge that they have received and understood the warning issued by the crowdfunding service provider (Article 21(4)).

    Each time before a prospective non-sophisticated investor or non-sophisticated investor accepts an individual crowdfunding offer thereby investing an amount that exceeds the higher of either €1,000 or 5% of that investor’s net worth as calculated in accordance with paragraph 5, the crowdfunding service provider shall ensure that such investor:

    (a) receives a risk warning;

    (b) provides explicit consent to the crowdfunding service provider; and

    (c) proves to the crowdfunding service provider that the investor understands the investment and its risks. For the purposes of point (c), the assessment referred to in Article 21(1) may be used as proof that the prospective non-sophisticated investor or non-sophisticated investor understands the investment and its risks (Article 21(7).

Crowdfunding Services Provider Obligations

In broad terms the facilitation of the granting of loans by the CSP is regulated by

(i) Article 3(2), 3(3), 3(4) and 3(5), Article 4(4), Article 5, Article 6 ((6(1) to 6(3))(6(5),6(6)), Article 19, Article 20 and

(ii) by EBA/RTS/2022/05 29 April 2022 (Final Report Draft Regulatory Technical Standards on credit scoring and pricing disclosure, credit risk assessment and risk management requirements for crowdfunding service providers under Article 19(7)).

The latter RTS is particularly important in the context of preparing the Article 12 documents required for an application for Authorisation.

Subject to that, the CSP must, amongst other things:

  • when onboarding a sophisticated investor, follow the procedure and comply with Annex II to the Regulation;

  • undertake at least a minimum level of due diligence in respect of project owners that propose their projects are funded through the crowdfunding platform of the CSP. This includes ascertaining that the project owner has no criminal record in respect of infringements of national rules in fields of commercial law, insolvency law, financial services law, anti-money laundering law, fraud law or professional liability obligations (Article 5 of the Regulation).

  • annually and on a confidential basis, provide a list of projects funded through its crowdfunding platform to the Central Bank of Ireland, specifying for each project:

    (a) the project owner and the amount raised;

    (b) the instrument issued, as defined in points (b), (m) and (n) of Article 2(1);

    (c) aggregated information about the investors and invested amount broken down by fiscal residency of the investors, distinguishing between sophisticated and non-sophisticated investors (Article 16(1)). The data standards and formats, templates and procedures for reporting information is set out in the Commission adopted RTS under Article 16(3) of the Regulation;
  • ensure all information as referred to in Article 19 (Information to Clients) and Article 27 (Article 27 requirements regarding marketing communications) is clear fair and not misleading (Article 19 of the Regulation);

  • inform their clients that their crowdfunding services are not covered by the deposit guarantee scheme. In the case of transferrable securities or admitted instruments for crowdfunding purposes acquired through their crowdfunding platform, that they are not covered by the investor compensation scheme (Article 19(2) of the Regulation);

  • if the CSPs apply credit scores to crowdfunding projects or suggest the pricing of crowdfunding offers on their crowdfunding platform, they must make available a description of the method used to calculate such credit scores or prices. If the calculation is based on accounts that are not audited, that must be clearly disclosed in the description of the method (Article 19(6) of the Regulation);

    (a) disclose annually the default rates of the crowdfunding projects offered on their crowdfunding platform over at least the preceding 36 months; and

    (b) publish an outcome statement within four months of the end of each financial year indicating, as applicable: the expected and actual default rate of all loans the crowdfunding service provider has facilitated, by risk category and by reference to the risk categories set out in the risk-management framework; a summary of the assumptions used in determining expected default rates; and where the crowdfunding service provider offered a target rate in relation to individual portfolio management of loans, the actual return achieved (Article 20 of the Regulation);

  • inform their clients about the reflection period for non-sophisticated investors referred to in Article 22. (Article 19(3) of the Regulation); A CSP must ensure that no money is collected from the investor or transferred to the project owner before the reflection period has expired (Recital 47 of the Regulation);

  • provide prospective investors with a key investment information sheet drawn up by the project owner for each crowdfunding offer (Article 23(2) of the Regulation). Note there are specific requirements for this information sheet in the case of CSPs providing individual portfolio management of loans (Article 24(1) of the Regulation);

  • have in place and apply adequate procedures to verify the completeness, correctness and clarity of the information contained in the KIIS (Article 23(11) of the Regulation);

  • have in place and apply adequate procedures to verify the completeness, correctness and clarity of the information contained in the KIIS at platform level. (Article 24(6) of the Regulation);

  • request the project owner to notify it of any change of information in order to keep the KIIS updated at all times and for the duration of the crowdfunding offer (Article 23(8) of the Regulation).

Obligations of Project Owner

Member States must ensure the responsibility of at least the project owner or its administrative, management or supervisory bodies for the information given in a KIIS. In broad terms, project owners have a duty to disclose in the KIIS a comprehensive set of information for each crowdfunding offer in a clear and transparent way to allow investors to assess the risks before investing.

Those responsible for the key investment information sheet must be clearly identified in the key investment information sheet by, in the case of natural persons, their names and functions or, in the case of legal persons, their names and registered offices, as well as declarations by them that, to the best of their knowledge, the information contained in the key investment information sheet is in accordance with the facts and that the key investment information sheet makes no omission likely to affect its import (Article 23(9) of the Regulation).

Bulletin board (Article 25)

CSPs may operate a bulletin board on which they allow their clients to advertise interest in buying and selling loans, transferable securities or admitted instruments for crowdfunding purposes that were originally offered on their crowdfunding platforms (Article 25(1) of the Regulation).

The bulletin board must not be used to bring together buying and selling interests by means of the crowdfunding service provider’s protocols or internal operating procedures in a way that results in a contract. The bulletin board must therefore not consist of an internal matching system that executes client orders on a multilateral basis. (Article 25(2) of the Regulation).

For Crowdfunding service providers that allow the advertisement of interest on the bulletin board, they must comply with the following requirements:

  1. they are to inform their clients about the nature of the bulletin board;

  2. require their clients advertising a sale of a loan, security or instrument to make available the key investment information sheet;

  3. provide clients intending to buy loans advertised on the bulletin board with information on the performance of loans facilitated by the CSP;

  4. ensure that their clients advertising an interest to purchase a loan, security or instrument and qualifying as non-sophisticated investors receive the information referred to in Article 19(2) and the risk warning referred to in Article 21(4) (Article 25(3) of the Regulation).

CSPs that allow the advertisement of interest referred to Article 25(1) and that provide asset safekeeping services in accordance with Article 10(1) must require their investors advertising such interest to notify them of any changes in ownership for the purposes of conducting ownership verification and record-keeping. (Article 25(4) of the Regulation).

CSPs that suggest a reference price for the buying and selling referred to in Article 25(1) must inform their clients that the suggested reference price is non-binding and substantiate the suggested reference price, and must disclose key elements of the methodology in line with Article 19(6). (Article 25(5) of the Regulation).


The Regulation impacts the functionality of the crowdfunding platform, the terms and conditions for each of investors and project owners, the due diligence to be carried out on clients, the onboarding of sophisticated, and non-sophisticated investors, including the structuring of a mandate to be given by an Investor to the CSP in the case of individual portfolio management of loans, the content of the Article 23 KIIS and of the Article 24 KIIS, and the marketing of projects to investors under Articles 19 and 27.

Additionally the Regulation regulates outsourcing, the interaction of the CSP with the payment services provider and custodian if relevant and requires the structuring and provision of a significant number of documents to satisfy the Article 12 requirements.

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