A new era of EU-wide crowdfunding
The European Parliament’s negotiating team reached a deal with the Council on 18 December 2019 on EU-wide rules to help crowdfunding services function smoothly and to foster cross-border business funding. Crowdfunding is progressively more of an alternative form of finance for start-ups, as well as for small and medium enterprises (SMEs) at an early stage of company growth. Its latest method is the Initial Coin Offering (ICO), where companies can execute the crowdfunding via cryptocurrencies.
A European crowdfunding service provider operates a digital platform open to the public to facilitate prospective investors or lenders being matched with businesses that seek funding. The team of negotiators agreed that a single set of rules will apply to crowdfunding services in the EU, that, up to EUR 5 million, will allow small companies to use the crowdfunding alternative to grow and buy the shares of certain private limited liability companies, which are transferable on the capital market. In addition, this procedure will contain an obligatory document called key investment information sheet (furthermore: KIIS) that inform the investors about the consequences.
Mandatory conditions to be included in all issued KIIS will be risk assessment, information about the charges of the procedure and insolvency risks that may occur. In case of non-sophisticated or non-institutional investors, the KIIS must be more comprehensive. The European crowdfunding service provider would need to request authorisation from the national competent authority of the Member State where it is established. The supervision would be carried out by the national authorities with the European Securities and Markets Authority (ESMA) facilitating and coordinating cooperation between Member States. This future legislation may pave the way for an easier capitalization process for SMEs which also can boost competitiveness.