Crowdfunding

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Crowdlending, crowdequity: understanding the European regulation on crowdfunding (ECSP)

Published on June 29, 2021

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On October 20th, 2020, the regulation on "European crowdfunding service providers for business" was published in the Official Journal of the European Union. While this new regulation represents a great opportunity for European harmonization, it does require platforms to comply. What are the procedures and steps to follow to comply with this new regulation? What will it change in concrete terms for crowdfunding platforms? Our answers.  

Regulations on alternatives financing, where do we stand?

Today, crowdfunding platforms must obtain approval specific to the regulations in force in their country. In France for example, two approvals allow platforms to engage in crowdfunding: the IFP (Intermediary in crowdfunding) and the CIP (Advisor in crowdfunding). Issued by the ORIAS, these approvals allow platforms to provide their services exclusively in France.  There is nothing to prevent a platform from supporting project leaders from other countries. But to do so, it must obtain approval from each country concerned. Indeed, an IFP or CIP that wishes to offer its services outside France must respect the legislation of the country in which it wishes to distribute its offers. It has therefore been relatively complex for platforms to become Europeanized, as they had to take multiple steps to obtain the various approvals required to expand their business.  

Crowdlending, crowdequity: towards a European harmonization of regulations

One of the objectives of the October 2020 law is to standardize European regulations for crowdfunding platforms. To do this, the European regulation provides for the establishment of a new approval: the ECSP or European Crowdfunding Service Provider. This European label allows the platforms, to extend their activity to the European scale, under conditions. No more requests for approval in each country, the platforms will then be able to develop their activity with much more ease. As a result, all European crowdfunding platforms will now be subject to the ECSP. For this purpose, a transition period is envisaged so that alternative finance platforms can adopt this new regime (supervised by the European Securities and Markets Authority (ESMA)) in place of their current status. The IFP and CIP statutes are already no longer issued by ORIAS in France.   

Crowdfunding and ECSP status: what the new European regulation will change

The new regime imposed by the regulation will have a considerable impact on the activity of crowdfunding platforms. The first concerns the ceiling on the amounts that can be raised by crowdfunding platforms. In France, the amount raised per project was previously limited to €1 million for PFI status and €8 million for CIP status, over 12 months. The new European regulation now lowers the ceiling to €5 million per project and year. One of the objectives of this approach is to diversify projects and mobilize a growing number of investors on the European scene. To comply with the new regulation, platforms must therefore implement the new thresholds... But above all, they must apply for (and obtain) ECSP status! Therefore, IFP or CIP platforms are required to apply for approval from the competent authority within 12 months of the implementation of the regulation. As the implementation date is November 10, 2021, platforms must take the necessary steps to obtain ECSP status before November 2022. At the end of this period, only providers authorized by the regulation will be able to offer alternative financing services Europe.  

Calendar

  • October 20, 2020: Publication of the new regulation in the Official Journal of the European Union.
  • November 10, 2020: The new regulation comes into force.
  • November 10, 2021: The new regulation applies.
  • November 10, 2022: Expiration of the transition period. Platforms will be required to have ECSP accreditation. 

ECSP, what impact on payment processes?

The new European status has no direct impact on the payment processes used by platforms. They still need to be registered as a "payment service agent" to collect funds on behalf of third parties (PSD2). Platforms will therefore have to be approved by the ACPR in France or by the competent authority in their country, or use the services of a PSP that has the necessary approval. The option is chosen by the majority of crowdfunding platforms, the PSP takes charge of the management of payment flows and assists the platforms in their compliance.  

Compliance: the checklist of steps to follow

Step 1: Apply for and obtain ECSP status. The crowdfunding platform must make an application for approval to the competent national authority of the country in which it is established. For French platforms, this is the AMF. 

Step 2: Sending the approval to the PSP. Before entering into a business relationship, the PSP checks the platforms' compliance with the new EU regulation and mentions it as part of the agent file.  

Lemonway, a pan-European PSP for a successful internationalization

As a pan-European Payment Service Provider, Lemonway offers a solution dedicated to crowdfunding platforms looking for a payment processing and collection system for third parties, within a secure and regulated framework. The European license held by Lemonway makes it an important ally for any platform wishing to take advantage of the European standardization of regulations to expand its activity. 
 

Case study: Estateguru - How to pursue borderless expansion and reach 5bn€ of annual loan volume in 3 years?

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