All business crowdfunding platforms operating within the European Union (EU) are now required to adhere to a new EU-wide regulatory framework. These regulations aim to bring a unified set of rules to the bloc, replacing the previous fragmented landscape that required platforms to seek approval from each individual EU country.
Key Takeaway
All business crowdfunding platforms operating within the EU must now comply with a new EU-wide regulatory framework. These regulations streamline the approval process and enable platforms to operate across all EU states. The regulations focus on equity- and lending-based crowdfunding for businesses, bringing significant opportunities for companies to raise capital and expand their operations.
The Many Forms of Crowdfunding
Crowdfunding encompasses various forms, including reward-based platforms like Kickstarter, which raise funds for new products; donation-based platforms used for charitable causes; equity-based platforms for companies seeking funds; and lending-based platforms used by businesses or individuals to borrow money.
Crowdfunding provides an alternative to traditional fundraising methods offered by banks or institutional investors, allowing individuals to raise small amounts of money from numerous sources. However, due to different regulations in each country and diverse treatment of equity- and lending-based crowdfunding, the industry has faced complexity and challenges in operating internationally via the internet.
New Crowdfunding Regulations in the EU
The European Crowdfunding Service Provider Regulation (ECSPR) now addresses these challenges by establishing a single framework for all business-focused crowdfunding platforms to follow. This framework streamlines the regulatory approval process, allowing platforms to operate across all 27 EU states with fewer hurdles. It also ensures that investors have a single protection framework, reducing their concerns and uncertainties when investing cross-border.
Benefits and Limits of the Regulations
The new regulations enable crowdfunding platforms to operate throughout the EU once they receive authorization from a national regulatory body. Private businesses in the EU can raise up to €5 million from retail investors in a single offering, with the potential to reach €13 million for platforms licensed in both the U.K. and the EU. Professional investors are exempt from these limits.
Consultation and Implementation
The process to address the fragmented EU crowdfunding market started in 2013 and was finally adopted in 2020 before being applied in 2021. However, the regulations only cover equity- and lending-based crowdfunding for businesses, excluding consumer-focused crowdfunding, peer-to-peer lending, and donation-based platforms.
Companies that previously operated on a country-by-country basis needed to reapply under the new EU-wide regulatory framework by 10 November 2021. This deadline was extended by a year to allow companies to transition smoothly. Today marks the expiration of this extended period.
Impact and Expansion Opportunities
The implementation of these regulations has unlocked significant potential for crowdfunding platforms in the EU. Platforms like Wefunder and Crowdcube have already expanded their operations in response to the new rules. Crowdcube co-CEO Matt Cooper highlighted the advantage these regulations provide to businesses by allowing them to raise substantial capital from their user community and retail investors. The changes have positioned Crowdcube to quickly and efficiently scale its operations in multiple European markets.
