On 24 March 2017 the Commission re-published its Report identifying national barriers which are hindering the acceleration of achieving a Capital Markets Union. The Commission’s initial version of the Report published on 27 February 2017 was withdrawn after the Commission was made aware of certain inaccuracies in the initial version. The Report is based on the findings of a group of national experts representing Member States. The Report identifies the differing national regulatory approaches to crowdfunding across Member States as being “of immediate concern”. In May 2016 the Commission published its Staff Working Document (the SWD) looking at crowdfunding in the context of CMU. The SWD concluded there was no strong case for EU-wide regulation at that time but the Commission would keep this under review.
(See our article CMU: European Commission report on crowdfunding concludes no strong case for EU-wide regulation at this time.)
Barriers to cross-border crowdfunding
The Report notes that different consumer and investor protection rules across Member States have led to crowdfunding platforms refusing to provide services on a cross-border basis. The Commission observes that crowdfunding platforms will only expand to new markets by way of an establishment in the new market.
The Report also identifies the following potential barriers to cross-border crowdfunding activities:
- differing national definitions and views on the scope of what constitutes crowdfunding
- differing national credit brokerage rules for lending based crowdfunding
- differing national conditions for authorisation (such as capital requirements), and
- differing national conduct of business rules.
The Report questions whether it is in fact possible for crowdfunding platforms to take advantage of non-domestic business due to the extent of divergence between national regulatory regimes. The Report also expresses concerns that in some Member States investment based crowdfunding platforms are required to be authorised under the national regime even though the platform should be able to provide cross-border investment services under the platform’s MiFID passport.
Other barriers to capital flow identified by the Report
The Report also identifies the following as barriers to capital flow:
- barriers to the cross-border distribution of investment funds, including marketing requirement disparities, administrative arrangements imposed on UCITS and regulatory fees for cross-border marketing
- investment requirements of pension funds
- residence and location requirements for certain financial management roles
- insufficient financial literacy amongst consumers and SMEs differences in national insolvency regimes, and
- burdensome procedures for withholding tax relief.
The Report contains a proposed “roadmap” of actions to be taken to reduce national barriers to capital flows. The Commission expects Member States to agree on the proposed “roadmap” and take action accordingly. It is worth noting that the roadmap does not contain any specific actions or deadlines as regards cross-border crowdfunding. Instead, the Commission invites Member States to consider whether their national crowdfunding legislation provides an effective level of investor protection while permitting cross-border activity.
The Report would indicate that the view of the Commission on this topic is evolving since the publication of the SWD in May 2016. This is not entirely surprising given that one of the five stated priorities of the CMU Action Plan is bringing down cross-border barriers with a view to developing capital markets for all Member States.
As acknowledged by the SWD, offers of securities made via crowdfunding platforms can potentially fall within the scope of the Prospectus Directive. At present, the requirement to publish an approved prospectus only becomes applicable if the total consideration of the offer is EUR 5m or above. As part of the ongoing PD3 review however, the trigger for the requirement to publish a prospectus is likely to be adjusted (with the possibility that each Member State would be able to determine its own trigger level). This could potentially bring more offers of securities made via crowdfunding platforms within the scope of the Prospectus Directive.
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