Crowdfunding is one of the easiest ways to go beyond the traditional methods of financing businesses. Although in many countries, this kind of financing has not been officially regulated for years, on 10 November 2021, the Regulation on European Crowdfunding Service Providers (ECSP) for business entered into force. The rules formally enter into the application from 10 November 2021 to 10 November 2022 (there is a possibility to extend the date to 10 November 2023). The new ECSP status will allow the operation in every EU Member State without needing additional authorisation.
We think that the new regulation potentially encourages a crowdfunding boom in Europe. Therefore, many financial companies feel enthusiastic about this new opportunity that opens the door to every European crowdfunding platform to apply for an EU passport based on a single set of rules and inspires them to offer cross-border alternative finance services. At the same time, investors could benefit, as the framework will be based on clear rules and strong and harmonised supervisory powers for international authorities.
Although hive5 was launched as an unregulated platform in Croatia, we have made every necessary step to protect investors‘ money. At the same time, we have started application preparation for the “passporting” procedure allowing the provision of crowdfunding services in the European Union and European Economic Area. Accordingly, we are waiting for updated and clearly defined ECSP regulatory framework guidelines, which shall be announced in November of this year. Nevertheless, there is some information announced regarding the new principles and processes of regulation:
• The crowdfunding platform should provide a knowledge test for all investors and, if necessary, alert the investor of the risks involved in an investment. This test determines the sophistication level of investors.
• The platform should provide investor protection by a cooling-off period for the non-sophisticated investor.
• Unsophisticated investors should not be able to finance a project over 1000 Eur or 5% of their net assets, except after acceptance of the risks incurred.
• Sophisticated investors should be able to invest without any limit in amount.
• Also, there should be some marketing limitations. All marketing and communication messages must be fair, clear and not misleading.
It is important to note that although some guidelines have been published, the new crowdfunding framework is not yet complete. However, we will certainly keep you updated on this matter.
* The blog post was written using the following sources: