New EU crowdfunding rules came into force today.
While heralded as a benefit to the European crowdfunding and peer-to-peer lending sector, it could equally be viewed as a threat to UK’s counterpart.
Regulation on European Crowdfunding Service Providers (ECSP) for business came into force today, after the rules were agreed last year.
The regulation lays down uniform rules across the EU for the provision of investment-based and lending-based crowdfunding services related to business financing. It aims to harmonise the existing patchwork of crowdfunding regulations across all 27 member states.
The rules allow 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.
According to the European Commission, the new rules are expected to increase the availability of crowdfunding finance, while giving investors in these platforms better protection.
The enhanced protection framework is based on clear rules on information disclosures for project owners and crowdfunding platforms, rules on governance and risk management for crowdfunding platforms, and strong and harmonised supervisory powers for national authorities overseeing the functioning of crowdfunding platforms.
The rules have by and large, been welcomed by the sector. Earlier this year, Oliver Gajda, executive director of trade body EuroCrowd, said the regulation will allow lenders and borrowers to access platforms in different EU countries and will ensure that all platforms are regulated and supervised to the same standard.
He said the rules will improve standards and safety for investors, and legislate for platforms to give them more information.
With better protections and unified regulations, the EU crowdfunding sector could be set for huge growth. However, this could perhaps be at the expense of the UK’s sector.
UK platforms are facing the possibility of additional Financial Conduct Authority rules on high-risk investments, with a policy statement to be published next year, so some could leave this space in favour of gaining one licence to operate across the whole of Europe.
As part of its global expansion plans, UK P2P lender JustUs recently opted to establish its European base in Estonia.
Over the summer, Konstantin Boyko, chief executive of technology company JustCoded, suggested that the European market could become as big as the UK market, although he added this will take time.
There is no doubt that the new EU rules introducing harmonised regulation and better investor protections present a huge opportunity for the EU crowdfunding market to grow.
But it remains to be seen whether any of this will be at the expense of the UK.