What does ECSPR mean for UK P2P platforms?
The newly introduced European Crowdfunding Service Providers Regulation (ECSPR) presents a new opportunity for UK peer-to-peer lending platforms. But it also has the potential to create more competition in the UK market.
As a result, Oliver Gajda, executive director of the European Crowdfunding Network (Eurocrowd) believes that UK P2P platforms should take some time to understand the impact of the new regulations.
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“The opportunity should be clear,” he says. “A significant market has just been harmonised under a highly innovative capital market law. It will take some time to fully play out, but you need to understand that it is already happening while you are still considering expanding locally.”
ECSPR allows all EU-based P2P and crowdfunding platforms to operate across the entire trading bloc with ease. This is likely to lead to the rapid expansion of European platforms, some of which have their own lending and borrowing operations in the UK.
Indeed, the first platform to obtain the new European licence was a British firm, Crowdcube. This means that they can now market European investments directly to European citizens. They also can finance European businesses more easily. Their potential market has just multiplied.
“Others are likely to join,” says Gajda. “Seedrs – another UK investment crowdfunding platform – is getting ready to take advantage of the new rules. German lending platform Kapilendo first merged with Invesdor earlier this year in Finland, and just now with OnePlanetCrowd in the Netherlands. And October, France’s largest business lending platform, acquired its nearest competitor Credit.fr earlier in 2022 in preparation for the new market.”
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ECSPR has been created to allow European companies easier access to European investors. But the regulations also affect UK platforms and their future operations. There is already a precedent emerging, Gajda notes.
Dutch platform Lendahand was among the very first ECSPR licence holders. While its investors are mostly European, the platform is still able to finance businesses in non-EU countries such as Mexico, Moldova and Kenya. This paves the way for other EU-based platforms to offer loans from countries such as the UK, potentially encroaching on the UK’s competitive business lending and property lending markets.
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Under ECSPR, a platform can offer direct investment or loans to businesses, specifically “…the joint provision of reception and transmission of client orders and the placement of transferable securities or admitted instruments for crowdfunding purposes without a firm commitment basis…” as well as “…the facilitation of granting of loans, including services such as presenting crowdfunding offers to clients and pricing or assessing the credit risk of crowdfunding projects or project owners”.
These definitions state that an ECSPR licence holder can finance any ‘project owner’, which “means any natural or legal person who seeks funding through a crowdfunding platform”.
ECSPR has therefore been designed to open the doors for non- EU based businesses to be ‘project owners’ which can access financing on ECSPR-licensed platforms.
However, Gajda adds that this may not be as easy as it sounds.
“The definitions of transferable securities and loans are obviously linked to European law,” he says. “This will be a legal issue which is going to addressed in the future and potentially in multiple jurisdictions. But with the possibility to acquire illiquid and non-transferable assets via single asset special purpose vehicles – at least for transactions using tradeable securities – suddenly a whole new set of opportunities arise.
“Whether or not this will present a real opportunity for European platforms to enter the UK market, given tax treatment and interpretation of national laws, remains to be seen.”