Equity crowdfunding is increasingly being recognized as an alternative method of finance for a range of players such as startups and small and medium enterprises (SMEs) at an early stage of company growth. A huge part of this growth is the increasing recognition from global policymakers changed to key moves across the globe, such as the US government enacting the JOBS Act in 2012. However, Europe is starting to catch up.
Crowdfunding in the continent is increasing in diversity. The UK and Germany are leading in Real Estate equity crowdfunding in the region, with companies like Shojin and Homegrown altering traditional real estate in London. Europe is home to some of the most successful equity crowdfunding platforms such as German venture, Companisto, Dutch platform Mymicroinvest and Swedish real estate platform Tessin. The presence of these platforms is prominent in Europe, with Crowdcube having over 700k registered users and more than €635M in term of total pledged investments through their online platform.
With the increasing presence of equity crowdfunding platforms in the continent, the European Union is in the process to expand its regulation to boost these platforms and protect investors. The new regulations aim to help platforms and investors by making platforms function smoothly and fostering cross-border funding.
Here is a refined summary of the top changes to pay attention to:
1. Extended scope of regulation with a higher threshold
- Increased the maximum threshold for each crowdfunding offer to €8M (from the maximum of €1M previously proposed by the European Commission) calculated over a period of 12 months.
2. Clarity and transparency from crowdfunding platforms
- Give clients clear information about financial risks and charges related to their investment, including insolvency risks and project selection criteria.
- It is highly recommended that crowdfunding service providers disclose the default rates of the projects offered on their platform every year.
- Further, provide prospective investors with a key investment information sheet drawn up by the project owner for each crowdfunding offer
3. Conflict resolution
- Platforms must ensure it has a complaint mechanism in place, for clients to use free of charge.
- This must include a standard template that can be filed by clients in case of complaints.
- The platforms must record all complaints in a database and measures taken in response.
4. National competent authorities to provide the authorisations
- European platforms willing to become regulated will need to get authorized from the national competent authority (each authority will be designed independently by each member state) and not by the European Securities and Markets Authority, as previously proposed by the European Commission.
The updated rules have been adopted with 38 votes in favour and 5 against. It will now be negotiated with the European Council and European Commission before the new regulations materialize.
Having gained experience in the UK Houses of Parliament, International Development and Chinese Think Tanks, Ellen has developed a passion for global affairs. She has undertaken her studies in the UK and has lived and worked in multiple countries including India, Switzerland, Spain and Hong Kong. She currently undertakes her studies at the University of Warwick, studying International Relations and Politics with a focus on Business. Ellen translates her passion for politics to the world of financial technology where she demonstrates a particular interest in developments in Asia.