EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

The Commission has today adopted a package of measures to deepen the Capital Markets Union, together with the Communication "Completing Capital Markets Union by 2019 – time to accelerate delivery". The package includes this proposal, as well as a proposal for an enabling EU framework on covered bonds, a proposal to facilitate the cross-border distribution of investment funds, a proposal on the law applicable to the third-party effects of assignments of claims and a Communication on the applicable law to the proprietary effects of transactions in securities.

This initiative is related to part of the Commission's priority of establishing a Capital Market Union (CMU), which aims to broaden access to finance for innovative companies, start-ups and other unlisted firms.

Today, access to finance remains difficult for these firms, particularly when they move from a start-up into the expansion phase, due to structural information asymmetries. Over-reliance on short-term unsecured bank lending is often overly expensive for start-ups and more generally for small and medium enterprises (SMEs). In addition, bank lending volumes to both start-ups and SMEs have been severely affected by the 2008 financial crisis, making the lack of funds an important reason as to why start-ups failed.

In the light of these market failures, crowdfunding has evolved into an established form of crowdsourcing and of alternative finance. The crowdfunding model normally involves the project owners that propose the project to be funded, investors that support the proposed project through funding and a moderating platform that brings the parties together to finance and launch the project in question. Crowdfunding platforms are increasingly used as a tool to finance various activities for small and nascent firms.

As a response, some Member States have already introduced domestic bespoke regimes on crowdfunding. However, Member States tailor their regulatory frameworks to the characteristics and needs of local markets and investors, which results in differences of how the rules are designed and implemented with respect to the conditions of operation of crowdfunding platforms, scope of permitted activities and licencing requirements. As a result of the different regulatory approaches, platform business models are not easily passportable across the Union. Given the uncertainty and high compliance costs for platforms in a cross-border setting that arise due to the lack of an appropriate EU framework for crowdfunding activity, crowdfunding services providers are facing difficulties in scaling their operations and cross-border flows remain limited.

The European Parliament and the Council adopted Regulation (EU) XXX/XXX on European crowdfunding service providers with a view, among others, to set out proportionate requirements to the provision of crowdfunding services and to facilitate their provision on a cross-border basis, while managing operational risks and ensuring a high degree of transparency and investor protection. Regulation (EU) XXX/XXXX [Regulation on European crowdfunding service providers] provides for uniform, proportionate and directly applicable requirements for authorisation and supervision together with a single point of supervision.

In addition, given the need to ensure a clear separation of services in order to manage conflicts of interest and to ensure effective supervision, a person authorised as a crowdfunding service provider under Regulation (EU) XXX/XXXX [Regulation on European crowdfunding service providers] should not be authorised under Directive 2014/65/EU, and vice versa.

In the interest of legal certainty and in order to avoid the application of requirements stemming from Directive 2014/65/EU to the provision of crowdfunding services, it is necessary to explicitly specify that Directive 2014/65/EU does not apply to persons authorised as crowdfunding service providers as defined in Regulation (EU) XXX/XXX,

To this end, this proposal exempts crowdfunding service providers from the obligations under Directive 2014/65/EU on the markets in financial instruments.

•Consistency with existing policy provisions in the policy area

The provision of crowdfunding services across the Union is regulated by Regulation (EU) XXXX/XX on European crowdfunding service providers, in relation to which the present Proposal is complementary.

•Consistency with other Union policies

The proposal is consistent and complementary to Regulation (EU) XXXX/XX on European crowdfunding service providers in the European Union, which aims to broaden access to finance for innovative companies, start-ups and other unlisted firms, in line with the Commission's priority of establishing a CMU. By providing crowdfunding service providers with a more enabling legal framework such Regulation complemented by the proposal seek helping start-ups and SMEs to access to alternative sources of capital in line with other initiatives that have sought to facilitate access to finance for these entities, such as the framework for European Venture Capital Funds.

The initiative is also part of the European Commission's FinTech Action Plan, designed to help better understand and enable technology to support the financial services sector. In effect, the financial services sector is the largest user of digital technologies and represents a major driver in the digital transformation of our society. These new technologies are changing the way consumers and firms access services, as well as improving the ability to understand and measure risks. The Commission aims to opt for a more innovation-oriented approach to FinTech by facilitating a regulatory environment where innovative financial services, products and solutions can be rolled out across the EU in a safe, financially stable environment for investors and firms alike.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis