COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European Crowdfunding Service Providers (ECSP) for Business and Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2014/65/EU on markets in financial instruments
Date: 2018-03-08
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: approximation of laws, crowdfunding, early-stage capital, financial legislation, financial services, innovation, investment, provision of services, small and medium-sized enterprises, start-up

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 8.3.2018 SWD(2018) 56 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European Crowdfunding Service Providers (ECSP) for Business  and  Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  amending Directive 2014/65/EU on markets in financial instruments {COM(2018) 113 final}  - {COM(2018) 99 final} - {SWD(2018) 57 final}  
 
 
Table of Contents 

Glossary ................................................................................................................................................... 3 

List of Figures ........................................................................................................................................... 4 

List of Tables ............................................................................................................................................ 5 

Introduction ............................................................................................................................................. 6 

1 

Policy Context and Problem Definition ........................................................................................... 7 

1.1 

Background and context .......................................................................................................... 7 

1.1.1 

1.1.2 

Key characteristics of crowdfunding ............................................................................... 8 

Size, geographic overview and trends ........................................................................... 16 

1.2 

Problem definition ................................................................................................................. 19 

1.2.1 

1.2.2 

Barriers to cross-border scaling up leading to underdevelopment .............................. 21 

Investors' lack of trust to engage on a cross-border basis ............................................ 25 

2  Why should the EU act? ................................................................................................................ 29 

2.1 

2.2 

The necessity of an EU action ................................................................................................ 29 

The value added of an EU action ........................................................................................... 30 

3  Objectives: What is to be achieved? ............................................................................................. 31 

4 

Policy Options and analysis of impacts ......................................................................................... 32 

4.1 

Scoping the policy action ....................................................................................................... 32 

4.1.1 

4.1.2 

4.1.3 

4.1.4 

Crowdfunding models ................................................................................................... 32 

Fundraising threshold .................................................................................................... 33 

Services .......................................................................................................................... 34 

Instruments ................................................................................................................... 35 

4.2 

4.3 

Baseline scenario – no EU framework (option 1) .................................................................. 35 

Building on reputational capital: minimum standards with best practices (option 2) ......... 37 

4.3.1 

4.3.2 

Rationale and key characteristics .................................................................................. 37 

Impacts .......................................................................................................................... 38 

4.4 
A  product-based  approach:  bringing  crowdfunding  within  the  existing  EU  single  rulebook 
(option 3) ........................................................................................................................................... 41 

4.4.1 

4.4.2 

Rationale and key characteristics .................................................................................. 41 

Impacts .......................................................................................................................... 44 

4.5 
A  complementary  service-based  solution:  a  regime  for  'European  Crowdfunding  Services 
Providers' (ECSPs; option 4) .............................................................................................................. 47 

4.5.1 

4.5.2 

Rationale and key characteristics .................................................................................. 47 

Impacts .......................................................................................................................... 49 

5 

Comparing the policy options ....................................................................................................... 51 

1 

 
 
 
6  Overall impact of the preferred option ......................................................................................... 54 

7  Monitoring and evaluation ............................................................................................................ 57 

Annex 1: Procedural information .......................................................................................................... 58 

Annex 2: Stakeholder consultation – Synopsis Report .......................................................................... 61 

Annex 3: Who is affected and how?...................................................................................................... 68 

Annex 4: Overview of Crowdfunding regulatory Frameworks in a selection of EU Member States .... 76 

7.1 

Overview of the legislative framework ................................................................................. 94 

7.1.1 

7.1.2 

7.1.3 

7.1.4 

Authorisation ................................................................................................................. 94 

Organisational requirements ........................................................................................ 95 

Conduct of business rules .............................................................................................. 95 

Transparency ................................................................................................................. 96 

Annex 5: Interplay with other EU legislation......................................................................................... 98 

Annex 6: Case Study extracts .............................................................................................................. 114 

Annex 7 List of references ................................................................................................................... 120 

2 

 
 
 
 
Glossary 

AIFMD 

CF 

CMU 

EBA 

ECB 

ECP 

ESAs 

ESMA 

FTE 

IB 

ICSD 

KIIS 

LB 

MiFID 

MiFIR 

NCA 

PD 

PSD 

PSWFC 

RTO 

SAFE 

SMEs 

Alternative Investment Fund Managers Directive 

CrowdFunding 

Capital Markets Union 

European Banking Authority 

European Central Bank 

European Crowdfunding Providers 

European Supervisory Authorities 

European Securities and Markets Authority 

Full-time equivalent  

Investment-Based 

Investor-Compensation Schemes Directive 

Key Investment Information Sheet 

Lending-Based 

Markets in Financial Instruments Directive 

Markets in Financial Instruments Regulation 

National Competent Authority 

Prospectus Directive 

Payment Services Directive 

Placing of Securities Without a Firm Commitment 

Reception and Transmission of Orders 

Survey on the access to finance of enterprises 

Small and medium-sized enterprises 

3 

 
 
List of Figures 

Figure 1. Funding escalator ................................................................................................................... 15 

Figure 2: European Alternative Finance Market Volumes 2013-2016 in EUR billion ............................ 16 

Figure 3: European Alternative Finance Market by category Volumes and average growth rates 2013-
2016 in EUR million ............................................................................................................................... 17 

Figure 4: World Online Alternative Finance Volumes 2013-2016, by regions (bn EUR) ....................... 18 

Figure  6.  Bank  lending  to  businesses  in  the  Euro  area  (EUR  million;  end  of  the  year,  outstanding 
amounts) ............................................................................................................................................... 21 

Figure 7. Total crowdfunding volume, average size of inflows and outflows, 2013 -2016 (EUR million)
 ............................................................................................................................................................... 22 

Figure 8. Impact of regulatory costs on operational costs .................................................................... 23 

Figure 9. Industry perceived risks to future growth of the alternative finance sector ......................... 25 

Figure  10.  Percentages  of  responses  to  the  question:  "Would  you  invest  with  the  same  confidence 
through platforms established in another EU Member State?" ........................................................... 26 

4 

 
 
 
List of Tables 

Table 1. Typology of crowdfunding business models ............................................................................. 9 

Table 2. Start-up crowdfunding: crowdfunding model, rewards and information asymmetries ......... 13 

Table 3. External effects of crowdfunding platforms ............................................................................ 14 

Table 5. Key requirements – Option 2................................................................................................... 38 

Table 6. Key benefits and costs, by stakeholder type – Option 2 ......................................................... 40 

Table 7. Key requirements – Option 3................................................................................................... 43 

Table 8. Key benefits and costs, by stakeholder type – Option 3 ......................................................... 46 

Table 9. Key requirements – Option 4................................................................................................... 48 

Table 10. Key benefits and costs, by stakeholder type – Option 4 (see quantification in Annex 3) ..... 50 

Table 11. Key characteristics of the policy options ............................................................................... 51 

Table 12. Benchmarking policy options ................................................................................................ 52 

Table 4. Illustrative summary of EU legal acts ...................................................................................... 99 

Table 13. Cases where MiFID/CRD/CRR provide for initial capital of less than standard €730,000 ... 107 

5 

 
 
Introduction 

This  initiative  is  part  of  the Commission's  priority of  establishing  a  Capital Market  Union  (CMU),  as 
announced in the Commission Work Programme 2018. Broadening access to finance for  innovative 
companies,  start-ups  and  other  unlisted  firms  is  at  the  heart  of  the  CMU  Action  Plan1.  Investment 
finance  remains  difficult  for  these  firms,  particularly  when  they  move  from  start-up  into  the 
expansion  phase.  The  plan  aims  at  strengthening  a  Europe-wide  'equity  culture'  and  at  developing 
alternative means of financing, including crowdfunding and peer-to-peer finance.2  

As  a  new  form  of  technology-enabled  financial  service,  crowdfunding  carries  the  potential  to  help 
better  match  investors  looking  to  support  innovative  business  ventures  with  projects  in  need  of 
funding.  With  appropriate  safeguards,  such  as  investor  protection  measures,  crowdfunding  can 
become an important source of non-bank financing and thus further the CMU overarching goals of 
supporting a more sustainable financial integration and public/private investments for the benefit of 
job creation and economic growth.  

Crowdfunding is increasingly establishing itself as an essential part of the funding escalator for start-
ups  and  young  businesses.  It  is  often  the  main  funding  tool  for  early  stage  companies  financed  by 
family, friends & own funds up to later development rounds where venture capital or even private 
equity funds start taking interest in those ventures. Crowdfunding also provides a complement (if not 
an  alternative)  to  unsecured  bank  lending,  such  as  bank  overdrafts  or  credit  card  loans,  which  are 
currently  the  main  sources  of  external  finance  for  SMEs,  especially  during  the  initial  period  of 
activity.3  This  type  of  bank  lending  is  often  overly  expensive  for  start-ups  and  more  generally  less 
accessible for SMEs due to structural information asymmetries  (like the lack of credit and business 
history). In addition, bank lending volumes to both start-ups and SMEs have been severely affected 
by  the  2008  financial  crisis  and  since  then  have  fallen  below  pre-crisis  levels.  CBInsights  identified 
lack of funds to be the second most of important reason as to why start-ups fail,4 representing 29% 
of  the  cases.  Funding  aside,  crowdfunding  is  also  used  as  a  unique  marketing  tool  and  has  helped 
businesses  build  their  brand  to  attract  a  wider  customer  base  as  well  as  to  help  pass  through  the 
proof of concept phase.  

The  Commission  Services  have  been  monitoring  crowdfunding  market  developments  for  several 
years.  A  staff  working  document  was  published  in  May  20165  which  concluded  that  there  was  no 
strong  case  for  EU  level  policy  intervention  at  that  juncture.  Since  then,  the  Commission  Services 
have gathered additional evidence on the demand for cross-border activity and on the barriers in the 

1 COM(2015) 468 final, 30.09.2015. 
2  This  impact  assessment  uses  the  term  'crowdfunding'  as  also  including  peer-to-peer  finance,  if  not  stated 
otherwise. 
3  See  European  Commission  (2016),  Survey on  the  access to  finance of  enterprises  (SAFE), Analytical Report, 
Chapter 1. The report also highlights the lack of debt securities finance for SMEs. For a more updated survey, 
but restricted to Euro area countries, please also see ECB (2017), Survey on the Access to Finance of Enterprises 
in the euro area, Chapter 3. 
4 https://www.cbinsights.com/research/startup-failure-reasons-top/ 
5 SWD(2016) 154 final, available here: https://ec.europa.eu/transparency/regdoc/rep/10102/2016/EN/10102-
2016-154-EN-F1-1.PDF 

6 

 
 
                                                            
Single  Market  through  stakeholder  consultations  and  external  studies.6  Moreover,  the  continued 
concentration of the European crowdfunding sector in a few Member States has underlined the need 
to  make  this  funding  method  available  more  widely,  notably  for  the  benefit  of  fund  seekers  and 
investors in smaller Member States. 

This initiative is also part of the Commission's FinTech Action Plan which aims to ensure that the EU 
adopts  an  innovation-oriented  approach  towards  FinTech  by  creating  a  competitive  environment 
where innovative products and solutions can be rapidly applied in a safe and stable environment. As 
observed  through  the  recent  developments  related  to  Initial  Coin  Offerings,  technology  is  bringing 
about  unprecedented  changes  to  the  financial  sector,  creating  new  opportunities  and  also  risks.  In 
this context, our goal can only be achieved by bringing forth a forward-looking regulatory framework 
that  is  fit-for-purpose  in  an  increasingly  digital  age.  Within  the  newly  emerging  space  of  digital 
finance, it must be ensured that investors are aware of the activities and risks they engage in so that 
they are able to make sufficiently informed decisions.  

The initiative focuses principally on the activity (operation of the platform) rather than the features 
of  the  underlying  instrument  being  traded  (risk  capital,  debt  or  other  instrument).  It  aims  to  help 
platforms  to  scale-up  across  the  Single  Market  by  creating  a  clear  regulatory  framework  at  the  EU 
level  that  enables  cross-border  activity  and  addresses  risks  in  a  proportionate  manner.  In  order  to 
create  the  necessary  trust  for  cross-border  investment,  investors  need  to  have  access  to  the 
necessary  flow  of  information  to  understand  underlying  risks  and  platforms  need  to  have  the 
necessary safeguards in place to preserve investor protection and minimise financial stability risks.  

1  Policy Context and Problem Definition 

The basic function of crowdfunding can be described as an open call via the Internet for the provision 
of  funds  by  the  public  at  large  to  support  specific  initiatives  by  typically  small  fundraisers.  The 
investors/lenders can provide the means as a pure donation (intangible reward) or in exchange for 
some  form  of  reward  in  order  to  compensate  for  the  financial  risk  taken  (tangible  reward). 
Crowdfunding  platforms  play  a  key  role:  as  technology-enabled  platforms/systems  they  enable 
interaction between fundraisers and the "crowd" (wide investor community).  

The  core  functionality  performed  by  these  platforms  is  that  of  matching  supply  and  demand  for 
capital in the form of ownership claims on project/company proceeds or debt claims on borrowers. 
Platform operations can be small, with less than 10 employees, or reach levels of more than 200 staff 
and operating with subsidiaries in several European countries.  

Although  the  overall  concept  of  crowdfunding  is  straightforward  (request  for  money  via  an  open 
call),  various  categories  have  developed  depending  on  the  type  of  rewards  offered  to 
investors/lenders. Section 1.1.1.1 provides an overview of the main categories. 

1.1  Background and context 

Crowdfunding has increasingly developed since the early 2000s, fuelled by the widespread use of the 
Internet. The crowdfunding industry is thus a relatively young industry.  The total online alternative 

6 See Annex 2: Stakeholder consultation 

7 

 
 
                                                            
finance market in Europe, which comprises predominantly crowdfunding, grew by 92% over previous 
year  to  reach  a  value  of  EUR  5.4  billion  in  2015.7  Without  the  United  Kingdom,  by  far  the  largest 
market in Europe, the market size reached around EUR 1 billion. Overall, the European market is still 
relatively modest compared to the online alternative finance markets in the US and Asia.8 

1.1.1  Key characteristics of crowdfunding 

There is no single comprehensive definition of crowdfunding. Definitions are often limiting in view of 
the innovative forms that crowdfunding service providers develop (Mollick, 2013). Crowdfunding is 
an  open  call  for  the  collecting  of  resources  (funds,  money,  tangible  goods,  time)  from  the  wider 
public through an Internet-based platform for a specific  project.9  Crowdfunding platforms can thus 
be viewed as 'two-sided' markets, i.e. a matching service that subsidises the (full or partial) cost of 
offering  access  to  one  side  (investors)  with  the  fees  charged  on  the  other  (project  owners). 
Crowdfunding platforms link fund seekers to investors/lenders.  

The  key  characteristics  of  the  crowdfunding  platforms  change  according  to  the  model  under 
consideration.  The remuneration  model  of  crowdfunding  platforms  typically  charge  the fundraising 
project with a fee, as a percentage of the total amount raised, while investors are not usually paying 
to invest on the platform or only if additional services are provided. The platform usually selects the 
project  that  can  be  listed  on  the  platform  and  either  allows  investors  to  pick  the  projects  on  their 
own or it applies some discretion (after having established some key preferences for the investor) on 
which  project  the  money  would  be  invested.  In  the  case  of  crowdfunding  platforms  dealing  with 
financial products, platforms are also not trading with their own balance sheet in most of the cases. 
Some lending-based crowdfunding platforms also rate the risk of different borrowers and place them 
into portfolio of loans with similar risks. Investors then set the level of risk they want to undertake, 
while  money  is  automatically  invested  in  the  different  portfolios.  Therefore,  the  degree  of  agency 
relationship  that  the  platform  has  with  investors  might  change  according  to  the  business  model, 
including  the  degree  of  discretion  that  the  platform  has  in  determining  the  investment  decision. 
Some equity crowdfunding platforms also exercise voting rights on behalf of client that are willing to 
use a proxy. Similarly, some lending-based platforms also enforce the terms of the loan agreement 
on behalf of the investor, directly or through debt collection agencies.  

1.1.1.1  Business models 

The  type  of  fundraising  activities  varies  greatly  across  the  different  crowdfunding  models.  The 
motivation and type of participants, as well as the resulting relationship between investors/lenders 
and fund seekers/borrowers, vary as well (Belleflamme, et al., 2012). There are different models of 
crowdfunding platforms and any categorisation is provisional, as the market develops and integrates 
new technologies in the service provision. The four main categories of crowdfunding platforms are:  

1)  Donation;  

2)  Investment;  

7  "Sustaining  momentum,  the  2nd  European  Alternative  Finance  Industry  Report",  University  of  Cambridge 
Judge Business School, September 2016. 
8 In 2015, the volume for the Asia-Pacific region (mostly China) equalled EUR 94.6 billion and EUR 33.6 billion 
for the Americas (mostly the US). 
9 See also European Commission, Communication on Crowdfunding, 27 March 2014. 

8 

 
 
                                                            
3)  Lending; and 

4)  Reward.  

There are then a number of platforms that combine different models or run a model that cannot be 
immediately  classified  under  these  four  categories,  but  they  are  usually  of  a  much  smaller  scale 
compared  to  main  ones.  Nevertheless,  we  can  identify  a  number  of  common  features  that  are 
helpful in explaining why economies of scale and market integration matter (see Table 1).10 Notably, 
the  type  of  reward  that  investor  are  potentially  getting  is  a  key  distinguishing  feature  across  the 
different models. It goes from no-tangible reward, like the recognition that donors get in donation-
based crowdfunding, to a very tangible reward, like the product or service that company produce in 
exchange  of  a  price  usually  lower  than  the  future  market  value,  when  the  product  will  be  publicly 
marketed. 

Table 1. Typology of crowdfunding business models 

Sub-type 

Reward type 

Pure Donation 

No reward 

Donation Crowdfunding 

Reward Donation 

Recognition, tokens or other 
non-tangible rewards 

No tangible Reward 

Other 

Low value tangible rewards 

Investment-based 
Crowdfunding 

Entrepreneur-led 

Investor-led 

Forgivable Loan 

Equity, bond-like shares, 
securities, revenue or profit 
sharing; Projects accessible 
to all investors 

Securities, revenue or profit 
sharing; Projects accessible 
to accredited investors only 

Interest only if project / 
firms has revenue or profit 

Lending Crowdfunding 
(peer-to-peer finance) 

Traditional Loan 

Fixed-term interest 

Pre- financing of account 
receivables 

Discounted invoices 

Reward-based 
Crowdfunding  

Product/service reward 

Reward in form of a finished 
product or a service 

Tangible Reward 

Source: Commission services. 

Donation-based Crowdfunding 

Donation-based  crowdfunding  typically  involves  investor  providing  a  monetary  contribution  in 
exchange of a non-tangible asset (like recognition or a token) or of a tangible asset of far lower value 

10 Agrawal, A., Catalini, C., & Goldfarb, A. (2014); Belleflamme, P., Omrani, N., & Peitz, M. (2015); Belleflamme, 
P., Lambert, T., & Schwienbacher, A. (2010). 

9 

 
 
 
 
 
 
 
 
 
                                                            
than  the  contribution  (like  a  t-shirt  or  a  pen).  This  crowdfunding  model  relies  on  philanthropy, 
whereby  people  give  money  towards  a  'good  cause'.  Backers  may  receive  tokens  that  increase  in 
prestige as the size of the donation increases, but these tokens do not hold any economic value. In 
2015  donation-based  crowdfunding  has  the  smallest  average  fundraising  size  (EUR  2  771).  The 
contribution is typically either directly channelled to the donee or collected by the platform (often a 
Non-Governmental Organisation), which will then pass them onto the recipient(s). 

Investment-based Crowdfunding  

ESMA defines 'investment-based' crowdfunding as:  

'[..] a call for funds for a specific project, usually through the internet. The people providing funds may 
do  so  [..]  in  return  for  a  right  to  participate  in  a  share  of  the  revenues  or  profits  of  the  project,  or 
through  the  purchase  of  a  debt,  equity  or  other  security.'  (ESMA,  Opinion  on  Investment-Based 
Crowdfunding, ESMA/2014/1378, 18 December 2014, p. 6). 

The model involves a project owner (fundraiser), an intermediary (the platform) and an investor (the 
crowd).  The  number  and  size  of  the  projects  being  financed  may  suggest  that  the  crowd  may  also 
include project owners, so the platform stands between a large number of fundraisers and investors. 
The  instrument  being  marketed  can  be  an  equity  stake  in  the  undertaking  or  any  other  type  of 
financial instruments in the form of a transferable security (e.g. debt securities). The reward relies on 
a  future  stream  of  cash  flows.  In  the  case  of  an  equity  stake,  as  would  be  the  case  for  listed 
companies, the investing shareholders hold partial ownership of the company or project and stand to 
profit,  if  it  performs  well,  or  lose  everything  if  it  fails.  Generally,  these  instruments  have  limited 
marketability  on  secondary  markets,  which  increases  the  probability  to  lose  the  full  investment. 
However, as the market expands, there are greater chances that demand for trading on secondary 
market will increase. In 2015 equity-based crowdfunding had the highest average deal size by model 
at almost EUR 460 000, whereas the average deal size for debt-based securities is just over EUR 190 
000. It is expected to see continued growth in average funding size for equity-based crowdfunding (in 
the UK the average deal size is well over EUR 600 000). 

Lending-based Crowdfunding 

EBA defines lending-based crowdfunding as:  

'Open calls to the wider public by fund seekers through a third party, typically an on-line platform, to 
raise funds for a project or for personal purposes, in the form of a loan agreement, with a promise to 
repay  with  (or  in  certain  cases  without)  interest.  The  fund  raisers  may  include  individuals,  start-up 
companies  or  existing  SMEs  that  are  seeking  an  alternative  means  of  funding,  rather  than  the 
traditional  credit  market.’  (EBA,  Opinion  on  lending-based  crowdfunding,  EBA/Op/2015/03,  26 
February 2015). 

Unlike  the  traditional  banking  model,  lending  in  crowdfunding  platforms  is  dispersed  while 
borrowing  is  concentrated  among  selected  project  owners.  These  investments  can  yield  a  higher 
return  than  savings  accounts  offered  by  banks,  but  can  be  subject  to  higher  risk.  No  regulatory 
safeguards, such as bank deposit guarantee schemes or investor protection schemes, protect these 
investments,  besides  the  different  pecking  order  compared  to  financial  instruments  (investment-
based instruments) in case of bankruptcy. If the borrower defaults or the platform becomes insolvent 
(in  case  it  pools  assets  on  own  balance  sheet),  the  lenders  risk  losing  part  or  almost  all  of  their 

10 

 
 
investment.  The  fundraising  entity  commits  to  pay  interest  on  the  sum  lent  by  each  respective 
investor at regular intervals, as it would be the case for a regular bank loan.  

There  is  a  variety  of  business  models  that  could  be  defined  as  lending-based  crowdfunding.  This 
depends  mostly  on  the  constellation  of  relationships  between  the  parties  involved,  for  example 
business-to-business  lending,  peer-to-business,  business-to-peer  and  peer-to-peer.  Although  many 
hybrid models are emerging (as well as increasing participation by institutional investors), two main 
models according to the recipient of the funds are observed:  

1)  Consumer lending; and  

2)  Business lending. 

Consumer  lending  involves  lending  to  natural  persons  for  consumption  purposes  (e.g.  travel,  cars, 
mortgage), while business lending involves providing funds to legal and natural persons for business 
purposes. Business lending can also take the form of individuals or institutional investors purchasing 
invoices or receivable notes from a business at a discount, holding it for the duration and receiving a 
financial return.11  

Average  deal  size  approaches  EUR  100  000  for  peer-to-peer  business  lending  and  peer-to-peer 
consumer loans are on average EUR 10 000 per loan. Automation (automatic selection and automatic 
bidding  of  small  &  large  funding  amounts)  plays  a  key  role  in  the  development  of  this  market 
segment. Cambridge Centre for Alternative Finance reported that in 2015, 82% of consumer-lending 
and of 38% business peer-to-peer lending12 were funded through automation.  

Reward-based Crowdfunding 

Reward-based  crowdfunding  was  the  earliest  form  of  modern  day  crowdfunding  to  develop.  This 
model is based on providing the investor (usually called 'backer') with a non-monetary reward, in the 
form  of  the product  or  service  that  the  fundraiser  offers  or  is  going  to  offer  in  the  future.  Backers 
usually get a discount on the future market price, which increases with the distance in time between 
contribution  and  finalisation  and  public  marketing  of  the  product.  Contributors  are  not  accredited 
investors to participate in any financial returns. The only commitment of the fundraiser is to deliver 
the service or the good at a future date. Average fundraising size is EUR 4 266. 

Mixed models  

In  recent  years,  new  operators  have  entered  the  market,  which  may  offer  mixed  elements  of  the 
different  business  models.  For  example,  equity  investors  may,  in  addition  to  their  equity  stake, 
receive additional non-monetary rewards. A further new crowdfunding approach is to sell a portion 
of  future  sales  (royalty)  in  return  for  an  investment.  This  can  be  attractive  for  investors  as  they 
receive  regular  income  from  gross  revenues,  while  benefitting  the  entrepreneur(s)  who  keeps  full 
ownership of the company. The downside is that royalties are deducted from revenues and therefore 
add to the expenses of running the business, thereby making this model potentially attractive only 
for high profit margin businesses. 

11  Due  to  rapid  growth  in  popularity,  invoice  trading  is  sometimes  highlighted  as  a  separate  business  model. 
Invoice  trading  has  been  the  fastest  growing  alternative  finance  model  in  continental  Europe,  growing  from 
EUR 7 million in 2014, up to EUR 81 million in 2015. 
12 "Sustaining Momentum, the 2nd European Alternative Finance Industry Report" op.cit. p.44  

11 

 
 
                                                            
1.1.1.2  Economics of crowdfunding and key stakeholders 

Crowdfunding  can  help  (innovative)  start-ups  to  provide  financing  in  the  early  stages  of  business 
development. Besides the monetary benefit, crowdfunding can also offer a number of non-monetary 
benefits,13 such as:  

i. 

ii. 

Validation of the business idea;  

Product validation (elicitation of customer preferences regarding product features by means 
of feedback and endorsements); 

iii.  Market validation (testing the waters before a possible official market launch); and  

iv.  Market penetration/expansion. 

For  investors/lenders,  the  type  of  financial  reward  depends  on  the  crowdfunding  model.  In  the 
lending crowdfunding model, loans plus interest are repaid based on pre-launch conditions in case of 
traditional lending, contributions are only repaid if and when a project generates revenue or profit in 
case of forgivable loan type lending. Equity crowdfunding attempts to raise money from the crowd in 
exchange for a stake in the firm.  

Peer-to-peer  business  lending  is  used  particularly  by  young  SMEs  and  micro-companies  that  have 
established  early  cash  flows  but  are  in  need  of  additional  funding  to  expand  or  bridge  short-term 
funding gaps. The high growth rate suggests that there is a strong demand for this type of funding 
and that these companies are either unable to attain a standard business loan from a bank or achieve 
preferable  financing  conditions  on  P2P  business  lending  platforms.  While  peer-to-peer  consumer 
lending has started to enable people to balance their time spending directly without a bank or other 
intermediary  acting  as  an  indirect  facilitator,  this  type  of  crowdfunding  does  not  contribute  to  the 
alternative  funding  of  firms.  The  same  applies  for  donation-based  crowdfunding,  which  is  mainly 
aimed  at  charities  and  other  philanthropy  or  artistic  enterprises.  In  view  of  financing  young 
innovative  firms  peer-to-peer  business  lending  and  investment-based  crowdfunding  are  the  most 
relevant types. 

Investment-based crowdfunding is usually less attractive for very young companies as low revenues 
and total profit-levels tend to limit the ability to raise sizeable funds. Super-fast growing companies 
can  mark  an  exception  in  this  regard.  Investment-based  crowdfunding  is  generally  more  aimed  at 
firmly established companies that are too small to access public capital markets but wish to finance 
substantially larger projects compared their current operations in order to drive further expansion. 
Selling  equity  stakes  not  only  acts  as  a  funding  source  but  it  also  distributes  business  risk  across  a 
larger number of stakeholders and can bring experienced partners into the business. 

13 Paschen (2017) and references herein (p.181) 

12 

 
 
                                                            
Table 2. Start-up crowdfunding: crowdfunding model, rewards and information asymmetries 

Source: Paschen (2017) 
Network effects 

A  platform  with  a  high  number  of  active  investors  will  be  more  attractive  for  an  entity  seeking  to 
raise  funds,  as  the  additional  investors  will  increase  the  likelihood  to  raise  sufficient  funds  for  the 
project. Likewise, a platform with a lot of accessible fundraising projects will be more attractive for 
investors. It provides them with a wider choice and allows for greater diversification of investments 
where the investor engages in multiple projects.  

Demand  on  both  sides  of  the  market  give  rise  to  network  external  effects,  both  across 
investors/lenders  and  fund  seekers/borrowers  (cross-group  external  effects)  as  within  the 
investors/lenders'  or  fund  seekers/borrowers'  group  (within-group  external  effects).  Overall, 
fund 
platforms  will  exhibit  positive  cross-group  externalities 
seekers/borrowers  and  positive  within  group  externalities  for  investors/lenders  (Belleflamme,  P., 
Omrani, N., & Peitz, M., 2015).  

investors/lenders 

from 

to 

This  interaction  creates  demand  side-economies  of  scale,  also  referred  to  as  network  effects.  Each 
new investor/lender or fund seeker/borrower creates additional value across the user group on the 
other side of the platform respectively i.e. a positive externality from the consumption of the service. 
Similarly, there are network effects that act within a single user group. A larger number of informed 
investors  on  a  platform  may,  for  example,  act  as  a  form  of  guidance  for  other  investors  and  thus 
improve  their  returns  (positive  externality).  Likewise,  a  larger  number  of  fund  seekers/borrowers 
competing for potential investors may reduce the chances of attracting funds (negative externality). 
This externality acts simultaneously with the cross-group positive externality for investors so that the 
overall effect in terms of social welfare remains positive in most scenarios.  

The above described network effects become significant once a certain number of subscriptions are 
achieved  often  referred  to  as  'critical  mass'.  Given  that  the  size  of  the  user  base  on  a  platform  is 
positively correlated to the value of the service, more users imply a higher value and thus increase 
demand. However, in order for this interaction to work, a platform needs a certain number of users 
to create sufficiently strong network effects.      

13 

 
 
 
Table 3. External effects of crowdfunding platforms 

Increase number of campaigns 
(fund seekers/borrowers) 

Increase number of 
investors/lenders 

Investor/lender 

Fund seeker/borrower 

  more choice 

 

harder 
funding 

to 

reach  sufficient 

  more competing projects 

 

 

easier 
funding 

easier 
funding 

to 

reach 

sufficient 

to 

reach 

sufficient 

Source: Commission services. 
The  network  effects  stimulate  concentration  in  the  crowdfunding  market.  Big  platforms  become 
even bigger, while small platform will not reach the critical size and will be forced out of the market. 
Finance  is  in  general  considered  a  distance-sensitive  business,  especially  when  it  comes  to  small 
fundraising projects. However, crowdfunding can overcome this proximity bias given its reliance on 
the  Internet  to  match  investor/lender  with  fund  seeker/borrower.  Current  research  indicates  that 
crowdfunding  has  partially  overcome  this  proximity  bias  (Agrawal,  Catalini  and  Goldfarb  2011; 
Mollick  2014),  while  geographic  clusters  exist  and  proximity  may  still  impact  the  type  and  success 
rate  of  projects.14  Nevertheless,  the  crowdfunding  market  differs  along  crowdfunding  model  and 
sector  allowing  for  specialisation,  so  opposing  forces  may  counterbalance  this  concentration  trend 
(Belleflamme, Lambert, and Schwienbacher 2010).  

Information asymmetries 

Information asymmetries are another key feature of crowdfunding markets, besides network effects, 
due to its highly dispersed investor structure. Ex-ante, adverse selection problems could arise given 
that investors/lenders lack the necessary information to assess the likelihood of success of projects. 
Hence,  platforms  risk  attracting  only  low-quality  projects,  given  that  high-quality  projects  may  not 
find the required funding at adequate conditions, due to investors' inability to assess their quality.15  
Ex-post, a moral hazard problem might face difficulties to ensure that fund seekers/borrowers deliver 
what they have promised.  

From  the  investor/lender  perspective,  an  investment  could  be  riskier  than  expected  due  to 
risk/return profile not being properly disclosed and/or more costly than expected due to costs (direct 
and  indirect)  not  properly  disclosed.  For  the  fund  seeker/borrower,  the  funding  could  be  more 
expensive  than  expected  when  costs  (direct  and  indirect)  and  risk/return  profile  are  not  properly 
disclosed,  which  could  also  lead  to  reputational  risk  for  the  platform  (lack  of  transparency  / 
misleading  information).  Moreover,  invested  capital  (partly  or  completely)  may  be  lost  or  not 
reclaimable due or the fund seeker/borrower may be faced with the inability to repay dues due to 
platform  failure  (counterparty  risk).  The  project  may  not  get  funded  or  the  investment  lost  due  to 
fraud  (risk  of  fraud)  or  a  delay  or  mistake  in  the  information  flow,  processing,  safekeeping  or 
administration (e.g. computer breakdown, mistake) (operational risk). All these risk can also lead to 
reputational risk for the platform. 

14  'The  average  distance  between  artists  and  investors  is  about  3,000  miles,  suggesting  a  reduced  role  for 
spatial proximity.' (Agarwal, Catalini, Goldfarb 2011). 
15 This is known as the 'lemon problem' (Akerlof, 1970). 

14 

 
 
 
                                                            
information  problems:  (i) 

Belleflamme  and  Thomas  (2016)  suggest  five  governance  strategies  for  crowdfunding  platforms  to 
deal  with  these  asymmetric 
information  dissemination;  (ii)  fraud 
prevention;  (iii) provision point mechanism, whereby fundraisers only receive money if a minimum 
threshold is reached; (iv) facilitate information exchange among investors/lenders; (v) establish trust 
in the platform. Essentially these strategies attempt to increase the amount and quality of available 
information;  built  reputation  signalling  high-quality  platforms  and  projects;  and  reduce  monitoring 
costs due to moral hazard. 

Although crowdfunding is still relatively small compared to the complete alternative finance market, 
it is considered to be an essential chain to allow innovative SMEs to develop and to bridge the ‘death 
valley’  between  own  resources,  friends  and  family  and  attracting  financing  from  sophisticated 
investors like business angels and venture capital providers. Crowdfunding provides an alternative to 
traditional sources of finance which aren't available due to information asymmetries (lack of credit 
and business history) or often overly expensive for start-ups to access (Tunguz, 2013). 

The  alternative  financing  methods  of  crowdfunding  has  shown  a  significant  potential  for  financing 
firms,  in  particular  for  SMEs  and  micro-enterprises,  and  bridge  existing  funding  gaps.  SMEs  will 
attract  different  types  of  financing  depending  on  their  stage  of  development  as  mirrored  by  the 
funding escalator (see Figure 1). Crowdfunding is particularly interesting for start-ups that are trying 
to  develop  and  maintain  a  viable  business  from  an  initial  business  idea  (Stemler,  2013). 
Crowdfunding has also been identified as being important for the development of innovative firms 
(Stanko and Henard, 2017).  

Figure 1. Funding escalator 

Source: Commission services. 

Each crowdfunding model brings specific monetary and non-monetary benefits that can be matched 
with  start-up  needs  as  they  grow  over  the  start-up  life  stage.  Paschen  (2017)  shows  that  lending 

15 

 
 
 
based  and  investment  based  crowdfunding  are  associated  with  SMEs  that  are  in  the  start-up  and 
growth phase respectively. 

1.1.2  Size, geographic overview and trends 

The  European  alternative  finance  market  as  a  whole  raised  a  total  of  funds  of  EUR  5.43  billion  in 
2015. This represents an annual growth rate of 92%. The market remains heavily dominated by the 
UK which constituted a market share of 81% with EUR 4.41 billion in 2015. The rest of the European 
market raised a total of EUR 1.2 billion and grew at a lower rate of 72% in that year. In 2015, a total 
of EUR 4.2 billion were raised through crowdfunding in the EU. This makes crowdfunding the most 
important  sub-market  of  the  alternative  finance  sector.  Excluding  the  UK,  the  countries  with  the 
largest total market volumes in 2015 were France, Germany, the Netherlands, Finland and Spain. 

Examining  the  market  share  in  more  detail,  peer-to-peer  consumer  lending  has  the  largest  market 
share,  followed  by  peer-to-peer  business  lending  and  equity-based  crowdfunding.  In  2015  peer-to-
peer consumer lending had a market share of 35.9% worth EUR 366 million, excluding the UK. It is 
the most established market segment, with growth between 2014 and 2015 declining to 33% from 
75% between 2013 and 2014.  

Figure 2: European Alternative Finance Market Volumes 2013-2016 in EUR billion 

n
o

i
l
l
i

b
R
U
E

9

8

7

6

5

4

3

2

1

0

1.13 

0,804 
0,326 

2013

5.43 

4,411 

1,019 

2015

2.83 

2,236 

0,594 

2014

EU27

UK

7.67 

5,608 

2,063 

2016

Source: University of Cambridge (2017)  

Peer-to-peer  business  lending  had  a  market  share  of  20.8%  in  2015  worth  EUR  293  million  and 
experienced  the  highest  annual  average  growth  rate  of  223%  between  2013  and  2015.  While  EU 
investment-based  crowdfunding  did  not  grow  quite  as  strongly  as  P2P  business  lending,  it 
nonetheless  achieved a  3-year  growth  rate  of  128%.  Reaching a  market share  of  15.6%  worth EUR 
222  million,  the  European  equity-crowdfunding  market  is  significantly  larger  in  relative  terms  than 
the  American  and  Asian  market.  As  for  P2P  business  lending,  the  high  growth  rate  indicates  that 

16 

 
 
 
 
 
smaller firms in the EU are in need of additional funding and manage to realise good conditions via 
crowdfunding platforms.  

Figure 3: European Alternative Finance Market by category Volumes and average growth rates 2013-
2016 in EUR million 

Donation-based

Reward-based

P2P Consumer

P2P Business

Investment -based

2016

2015

2014

2013

0

500

1000

1500

2000

2500

3000

3500

4000

Source: University of Cambridge (2017).Note: P2P Business includes 'p2p property lending', which is 
used to finance property development projects. 

Despite the relatively fast development of the European market for crowdfunding, the continent has 
not  kept  pace  with  other  major  regions  around  the  world.  As  seen  from  the  figures  below,  even 
when including the UK, the EU market has not been developing as fast as in other areas. Given that 
the growth rate in Europe has already started to slow, it is possible that the gap in contrast to other 
regions will continue to grow over the coming years. 

17 

 
 
 
Figure 4: World Online Alternative Finance Volumes 2013-2016, by regions (bn EUR) 

250

200

150

100

50

0

1,13 

3,2 

4,7 

205 

86 

24,2 

5,43 

35,2 

7,67 

European Union

Americas (inc. US)

China

20,5 

9,7 

2,83 

2013

2014

2015

2016

Source: University of Cambridge (2017).  

The  European  market  has  grown  asymmetrically  and  remains  heavily  concentrated  in  a  few  large 
countries, specifically the UK, France and Germany in terms of the number of platforms and volumes 
of capital raised. Excluding the UK, the countries with the largest total market volumes in 2015 were 
France  (EUR  319  million),  Germany  (EUR  249  million),  the  Netherlands  (EUR  111  million),  Finland 
(EUR 64 million) and Spain (EUR 50 million).  

The  expansion  of  crowdfunding  remains  heavily  domestically  oriented  in  the  EU  with  little  cross-
border  activity.  Between  2013  and  2014,  there  was  EUR  180  million  of  cross-border  funding  for 
successful projects which amounted to 8% of the total EUR 2.3 billion raised for successful projects. 
However, this was predominantly raised through non-EU platforms. Cross-border activity within the 
EU amounted to EUR 16.9 million, a mere 0.73% of the total raised in this period.  

A recent survey16 indicates that for almost half of the platforms none of the funds raised came from 
foreign  investors;  moreover,  more  than  three-quarters  of  the  platforms  indicated  that  they  had 
raised  less  than  10%  from  foreign  investors.  With  regard  to  foreign  outflows,  only  a  quarter  of 
platforms raised funds for projects outside the national borders.  

While crowdfunding was only a marginal trend being embraced by early adaptors a few years ago, 
the sector has grown at an extremely rapid pace over the last years and is seeing increasing interest 
in  all  levels  of  society.  The  European  crowdfunding  market  has  experienced  more  institutional 
involvement  recently  in  terms  of  funding  and  platform  ownership  suggesting  that  the  market  is 
beginning  to  mature.  Participation  rates  of  institutional  investors  in  crowdfunding  grew  by  83% 
between 2013 and 2015, with institutional investors providing around one quarter of funds in peer-
to-peer lending and 8% in equity-based crowdfunding. The increasing rate of institutional investors 
demonstrates  a  rise  in  trust  levels  vis-à-vis  crowdfunding  investments.  Given  the  large  sums  of 

16  "Sustaining  momentum,  the  2nd  European  Alternative  Finance  Industry  Report",  University  of  Cambridge 
Judge Business School, September 2016 (University of Cambridge (2016)) 

18 

 
 
 
                                                            
institutional money potentially available for the further development of the market, it will be crucial 
to  maintain  trust  by  establishing  standards  that  act  to  uphold  high  levels  of  integrity.  Inability  to 
curtail  risks  of  fraud  or  other  illicit  activity  could  be  a  major  setback  for  the  development  of  the 
European  market.  The  European  crowdfunding  market  is  also  showing  early  signs  of  consolidation 
with  the  first  platforms  merging  or  attempting  to  take  over  platforms  and  unsuccessful  platforms 
exiting  the  market.  Moreover,  enabling  regulation  in  Member  States  has  been  shown  to  correlate 
with high market volumes in the industry. At the same time, existing laws de facto impede certain 
types  of  crowdfunding  to  develop  in  some  Member  States.  While  the  market  continues  to  grow 
quickly,  regulatory  barriers  are  limiting  the  potential  of  the  European  crowdfunding  market.  More 
cross-border activity would spur the further development of the industry and access-to-finance for 
early-stage firms, especially in small Member States and those Member States with less developed 
national markets.  

1.2  Problem definition 

The  following  section  explores  two  main  problems  in  the  European  market  for  crowdfunding:  one, 
the inability of the crowdfunding market to scale up at a level that would provide a meaningful boost 
to early stage funding for businesses across Europe; two, the lack of trust by investors to engage in 
cross-border activity. 

While  some  domestic  crowdfunding  markets  are  developing  rather  fast,  the  size  to  finance  these 
platforms  can  raise  is  too  small  compared  to  the  overall  early-stage  financing  needed  by  non-
financial  corporations.  Cross-border  activity  is  almost  absent  and  platforms  struggle  to  scale  up 
enough  to  be  able  to  undertake  cross-border  activities.  Most  notably,  while  project  owners  are 
willing to fund themselves cross-border, the cross-border accessibility and demand on crowdfunding 
platforms is fairly limited, beyond what the local origins and the limited international exposure of the 
project  may  naturally  determine.  A  major  consequence,  among  others  discussed  in  the  following 
sections,  is  the  inability  to  create  a  solid  pool  of  early-stage  financing  across  Europe,  which  would 
serve very young businesses irrespective of their place of establishment. 

Concerns about the reliability of  crowdfunding platforms are considered as  key risks for the future 
growth of the industry. The biggest risks perceived are loan defaults or business failures, fraudulent 
activities  or  the  collapse  of  platforms  due  to  malpractice.  This  reflects  concerns  about  weak 
governance  practices,  notably  in  areas  such  as  risk  management  or  the  prevention  of  conflict  or 
misalignment  of  interests.  Moreover,  investors  appear  not  to  have  sufficient  information  or  to  be 
misinformed about the potential risks of projects or about the operation of platforms. Requirements 
to  ensure  an  adequate  disclosure  of  offers  intermediated  through  crowdfunding  platforms  do  not 
exist  or  vary  considerably  which  complicates  comparability.  Moreover,  from  a  financial  integrity 
perspective, platforms remain vulnerable to issues concerning the security of client data and the use 
of crowdfunding for illicit activities. 

The  problem  tree  below  provides  an  overview  of  those  two  major  problems,  with  its  underlying 
drivers and consequences. 

19 

 
 
20 

      Drivers Problems Consequences  D.1 Conflicting frameworks for crowdfunding activities Different licensing regimes oscope (business models; instruments) osafeguards (disclosure; due diligence) obusiness requirements (organisational; conduct) Fragmented application of different thresholds and exemptions under existing EU legislation Different definitions of business models Fragmented investor protection frameworks (e.g. conduct and information disclosure) across the EU while the nature of the risk is similar Out of scope Drivers Different legal systems (company law, etc)   Taxation  Other factors (e.g., language and financial education)   P.1 Barriers to cross-border scaling-up, leading to underdevelopment High market entry costs  Legal uncertainty (e.g. compliance risks, like regulatory arbitrage) Enhanced operational and sustainability risks for different business models (incl. profitability) Regulatory arbitrage risk  P.2 Investors' lack of trust to engage on a cross-border basis High search costs due to enhanced information asymmetries and divergent disclosure frameworks Uncertainty about legal protections, individual rights, etc. C.1 Less efficient and stable EU capital market   Risks of cross-border spillover effects (generalised lack of confidence) Less developed capital markets and so risk sharing mechanisms to stabilise Europe's financial system   D.2 Features of crowdfunding  Enhanced asymmetric information due to the dispersed investor structure Enhanced asymmetric information when dealing with products embedding a financial return  C.2 Lack of early stage financing in the EU Gap in early stage funding escalator for innovative businesses Difficulty to finance larger funding rounds in MS with small internal markets Lack of competitive tools to lower funding costs for SMEs    
 
1.2.1  Barriers to cross-border scaling up leading to underdevelopment  

SMEs are heavily reliant on short-term unsecured bank funding. Currently, the weight of crowdfunding over the total 
SME funding is still fairly small, with bank funding to SMEs in the order of hundreds of billion euros, compared to the 
EUR  7.671  billion  of  the  whole  European  crowdfunding  market  in  2016.  Nonetheless,  as  banks  restructure  and 
consolidate, there is a structural downward trend in the availability of the most used bank financing tool for SMEs, as 
well as bank loans below EUR 1 million (see Figure 5). The development of crowdfunding markets as a stable funding 
tool for businesses is increasingly becoming a key element for Europe's financial system and partially replacing short-
term unsecured bank funding. 

Figure 5. Bank lending to businesses in the Euro area (EUR million; end of the year, outstanding amounts) 

n
m
R
U
E

€ 750.000 

€ 700.000 

€ 650.000 

€ 600.000 

€ 550.000 

€ 500.000 

€ 450.000 

€ 400.000 

€ 350.000 

€ 75.000 

€ 70.000 

€ 65.000 

€ 60.000 

€ 55.000 

€ 50.000 

€ 45.000 

€ 40.000 

€ 35.000 

n
m
R
U
E

2010Dec 2011Dec 2012Dec 2013Dec 2014Dec 2015Dec 2016Dec 2017Sep
Loans up to EUR 1 mn (rhs)

Revolving loans and overdrafts

Source: ECB Data Warehouse. 

While  the  European  crowdfunding  market  has  skyrocketed  over  the  recent  years,  with  annual  growth  rates 
exceeding  100%  in  some  sub-sectors,  there  are  increasing  indications  that  the  rapid  expansion  phase  may 
significantly slowdown  in coming years. Establishment of  new  platforms  seems  to  have peaked and  is  foreseen  to 
decrease  further,  as  2016  started  to  show  a  phase  of  consolidation  within  MS.  The  growth  rate  in  the  most 
established  market  segment  of  peer-to-peer  lending,  dropped  by  more  than  half  to  33%  in  2014-15  (75%  in  the 
previous  year).  Furthermore,  the  European  crowdfunding  sector  remains  strongly  fragmented  along  national 
borders, despite crowdfunding is less sensitive to distance than traditional finance (Agarwal, Catalini and Goldfarb 
2011).  More  than  two  thirds  of  European  platforms  collected  5%  or  less  of  their  total  funds  from  cross-border 
investors.  76%  of  platforms  reported  that  no  project  listed  on  their  platform  comes  from  outside  the  national 
border.  16%  of  platforms  indicated  that  less  than  10%  of  funds  raised  left  the  country  of  origination.  Only  10 
Member States17 have active investment-based crowdfunding platforms operating in multiple jurisdictions.18 While 
the  survey  reported  the  existence  of  33  platforms  with  some  form  of  MiFID  license,  only  5  tied  agents  related  to 
those firms were reported to have been operational in another Member State. As all of them were reported in the 
UK, this indicates that – given the high regulatory costs involved with entering a new market – platforms focus their 
efforts on large domestic markets, thus depriving less-developed and smaller Member States from the benefits of 
alternative finance. 

17 France, Germany, Italy, Netherlands, Spain, United Kingdom, Finland, Norway and Sweden, Czech Republic. 
18 
Review 
to 
https://www.esma.europa.eu/sites/default/files/library/esma31-68-147_esma_response_to_cmu_mid-term_review.pdf 

Mid-Term 

Response 

Please, 

ESMA 

CMU 

see 

the 

consultation 

21 

 
 
 
                                                            
 
 
 
 
Figure 6. Total crowdfunding volume, average size of inflows and outflows, 2013 -2016 (EUR million) 

€ 9.000 

€ 8.000 

€ 7.000 

€ 6.000 

€ 5.000 

€ 4.000 

€ 3.000 

€ 2.000 

€ 1.000 

€ 0 

€ 7.671 

€ 650 

€ 515 

EU

2013

2014

inflow
2015

2016

outflow

Source: Commission services' estimates from University of Cambridge (2017) . Note: the estimates are based on the 
assumption that outflows and inflows are similarly distributed across all categories of platforms.  

While  some  platforms  are  receiving  cross-border  investments,  they  are  often  not  actively  marketing  in  those 
countries,  mostly  because  of  the  regulatory  implications,  as  reported  in  case  studies  reviewed  in  Annex  7.  The 
regulatory environment confronting the crowdfunding industry is very diverse, presenting considerable complexity 
for those platforms keen to extend operations on a cross-border basis without a passport and high compliance costs 
due  to  different  requirements  in  national  jurisdictions.19  Licensing  requirements  in  many  Member  States  create 
additional cost barriers not just through licensing and local advisory fees, but also due to the rising legal uncertainty. 
Platforms  are  often  not  allowed  to  operate  under  the  same  business  model  and  have  to  adjust  their  models 
according  to  separate  jurisdictions.  One  platform  indicated  that  often  even  the  local  law  offices  from  the  target 
Member  State  cannot  assure  them  that  they  could  operate  within  the  market  without  the  possibility  of  legal 
sanctions as the. 

A  number  of  platforms  have  noted  that  bespoke  national  regimes  are  one  of  the  major  hurdles  to  cross-border 
activity. As Member States do not coordinate their actions whilst implementing tailored regulatory frameworks for 
crowdfunding  activity,  these  tend  divergence  in  a  number  of  aspects  such  as  permitted  activity,  instruments, 
thresholds and other requirements – making it increasingly difficult for businesses to simultaneously comply with a 
number of different requirements. These platforms also highlighted that EU action should not be delayed because an 
increasing  number  of  Member  States  are  coming  forward  with  their  own  locally  tailored  regimes  and  are  also 
reviewing them to add further detail to the requirements. This continues to create even greater obstacles for cross-
border  activity  and  may  in  the  end  create  a  great  number  of  entrenched  local  frameworks  and  heavy  resistance 
towards convergence by local market incumbents that want to preserve their existing business models. 

Market  observations  indicate  that  there  are  currently  no  platforms  that  actively  operate  at  a  pan-European  level. 
Platforms  that  do  operate  cross-border  generally  choose  to  do  so  only  within  a  limited  number  of  (often 
neighbouring) countries. A platform notes20 that "…operating in seven different countries requires compliance  with 
seven different crowdfunding regulations or, in the absence of those, with other local rules." Platforms that accept 
cross-border fundraising projects and investments state that they are facing significant legal uncertainties in terms of 

19 "The use of a MiFID license doesn’t seem to make the cross-border experience easier. The different national regulatory regimes 
don’t allow for the full passporting of the license in the MS and they imply high compliance costs too." European Crowdfunding 
Network & Osborne Clarke, "Barriers to the cross-border development of crowdfunding in the EU", June 2017, p18. 
20 Idem, p19 

22 

 
 
 
 
                                                            
whether this could stand in conflict with national legislation applying in their home MS. For a third of the platforms 
in the survey21, compliance costs can make up more than 20% of total operational cost in cross border business and 
for 50% they make more than 10% of operational costs (see Figure 7).  

Figure 7. Impact of regulatory costs on operational costs  

40% 

30% 

20% 

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

10% 

<5% of total
operational cost

5-10% of total
operational cost

10-20% of total
operational cost

>20% of total
operational cost

Source: European Crowdfunding Network and Osborne Clarke 

These costs can have negative consequences for the level of competition, leading to market concentration, higher 
costs and less choice for clients with a lower drive for innovation. As platforms continue innovating their business 
models,  expansion  into  other  markets  would  also  support  profitability  and  ensure  platforms  can  develop  on  a 
sounder  footing  and,  as  the  market  matures,  can  consolidate  at  European  level.  As  they  mostly  rely  on  a 
remuneration-based model, i.e. charging project owners as a percentage of the capital raised (according to the 'two-
sided'  characteristic  of  the  market  discussed  in  section  1.1.1).  Cross-border  is  also  a  necessary  step  for  platforms 
developed in smaller member states, where the size of the domestic market (in terms of number of domestic project 
owners as well investors with a suitable risk profile) may not be sufficient enough to ensure long-term sustainability 
or  even  emergence  of  such  a  market.  Statistics  collected  by  ESMA  show  that  investment-based  crowdfunding 
platforms are pre-dominantly concentrated within the largest and more developed European markets that have the 
capacity to raise significant funding amounts. On the other hand it is well-recognised that there is a very significant 
gap for early stage investments in small European States.  

Market fragmentation also reduces the benefits of network effects on funding costs and pushes the market into a 
vitious circle that could constraint crowdfunding markets for a long time. Furthermore, in targeted consultations, the 
industry  has  highlighted  that  profitability  remains  an  issue  for  the  sustainability  of  their  business  models  due  to 
insufficient  scale,  even  for  established  platforms  in  large  markets.  ESMA  highlights  that  the  fees  charged  by 
investment-based platforms have been increasing  – as indicated by the 2016 survey, reaching on average 5-8% of 
the total fundraising amount, which puts the total revenues for the whole European crowdfunding industry between 
EUR 272 and 434 million. One of the largest investment-based platforms in the UK has helped businesses raise GBP 
358 million since 2011. Given that they charge 7% of the total amount, revenues to cover 6 years of operations and 
around 80 staff thus equals GBP 25.06 million (a bit more than EUR 4 million per year). 

Respondents  to  the  FinTech  Consultation22  generally  argued  that  the  existing  national  regimes  for  crowdfunding 
have a significant impact on sector development. The vast majority of national competent authorities stated that the 

21 Idem, p32 

23 

 
 
 
                                                            
existence  of  multiple  regimes  and  the  lack  of  a  common  EU  regulatory  regime  create  barriers  for  cross-border 
expansion  of  crowdfunding  platforms.  None  of  them  mentioned  proximity  between  investor  and  fundraiser  as  a 
reason for platforms not to develop cross-border. Almost half of the other respondents equally noted that national 
regulatory  regimes  hinder  cross-border  activities  for  crowdfunding  and  peer-to-peer  finance.  They  noted  that 
harmonisation at the EU level could reduce fragmentation of the EU market, mainly attributable to divergences in 
the regimes adopted by different Member States. It was also highlighted that the MiFID passporting regime, despite 
its  high  cost,  is  often  ineffective  in  facilitating  activities  across  the  EU,  as  some  Member  States  require  separate 
authorisation  under  the  respective  bespoke  national  regimes,  regardless  of  whether  firms  hold  a  MiFID  license  in 
another  MS.  Respondents  likewise  stressed  (in  line  with  EBA)  that  the  EU  passport  under  the  Payment  Service 
Directive  could  never  cover  the  full  range  of  activities,  also  in  the  case  of  lending-based  crowdfunding  platforms. 
According to most respondents, the lack of an EU framework and the lack of passporting rights make it complex and 
costly for crowd and peer-to peer platforms to scale up across the EU.23  

Moreover, there is additional uncertainty weighing on platforms' decision to go cross-border. EBA highlighted that 
'[..]the  lending-related  aspects  are  not  covered  by  EU  law,  leaving  several  risks  and  risk  drivers  that  the  EBA  had 
identified  unlikely  to  be  addressed.  [..]the  EBA  concludes  that  the  business  models  of  lending-based  crowdfunding 
platforms do not fall inside the perimeter of credit institutions and their typical business model as defined in the EU 
legislation.  The  funds  provided  by  lenders  with  crowdfunding  platforms  would  therefore  not  qualify  as  deposits 
eligible for protection under a deposit guarantee scheme, taking into account the definition of ‘deposit’ in Article 2(1), 
point 3, of Directive 2014/49/EU (the Deposit Guarantee Schemes Directive).'24 It suggests that the risk of regulatory 
circumvention  or  uncertainty,  due  to  a  patchy  framework  of  national  regulations,  may  discourage  further  cross-
border activity, both for platforms and investors. 

Other  barriers  to  cross  border  expansion  were  identified  during  a  workshop  with  platform  representatives.  One 
platform found the lack of reliable data such as access the creditworthiness of foreign SMEs to considerably limit the 
countries towards which a cross border expansion is possible. Another platform recalled that, besides the substantial 
national rules they have to comply with within each jurisdiction and the licencing process itself often proves to be a 
long, tedious and disheartening process. 

Moreover, as it was pointed out by a respondent, the general absence of a clear regulatory framework may inhibit 
new market entrants. They would be concerned with the consequences of sunk costs and future potential regulatory 
costs when acting without a basic guiding regulatory pathway for making jurisdictional and legal choices. 

The study by ECN and Osborne (2017) produced a number of case studies on major European platforms operating 
cross-border.  Annex  7:  Case  Study  extracts  provides  examples  of  the  different  issues  that  these  platforms  faced 
when attempting to operate in other EU Member States. The main report of the study also highlighted six different 
methods 25that platforms currently have to resort to for cross-border transactions, highlighting the disadvantages of 
each and concluding that no suitable framework currently exits. It is worth noting that two of these methods are not 
comprehensive as they do not permit active cross-border marketing of services and provide only a partial solution 

EBA, 

Opinion 

22 See Annex on Stakeholder Consultations. 
23 A more detailed analysis of the consultation responses in provided in the Annex. 
24 
on 
https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-
03+%28EBA+Opinion+on+lending+based+Crowdfunding%29.pdf 
25  Identified  methods  for  cross-border  operations:  i)  Operation  via  distinct  business  in  each  Member  State  under  local 
legislation;  ii)  Operation  via  a  partner  platform  to  collect  investment  from  investors  outside  the  home  Member  State;  iii) 
Operation via EU (MiFID) license for the platform as a financial service provider; iv) Operation via a special purpose vehicle (SPV); 
v) Accepting cross-border investments (for predominantly local deal-flow); vi) Brokering cross-border investments to local (and 
other) investors 

crowdfunding, 

lending-based 

available 

2015, 

at  

24 

 
 
                                                                                                                                                                                                                      
for  some  business  models  in  certain  Member  States.  As  for  the  other  four  options,  the  study  underlines  that  the 
most significant obstacles are separate, lengthy and thus costly national regulatory approval procedures (up to one 
year),  time-consuming  processes  for  identifying  suitable  partnerships  in  other  Member  States,  costly  compliance 
with  MiFID  as  well  as  the  cost  of  setting  up  special  purpose  vehicles  and  their  recognition  within  different  local 
regulation. 

To  conclude,  besides  the  uncertainty  for  platforms  and  investors,  the  high  costs  for  the  crowdfunding  industry  to 
scale  up  and  overcome  low  profitability  may  increase  pressure  towards  domestic  concentration,  leading  to  rent-
seeking behaviours and higher costs for fund raisers that may actually reduce the appetite for this funding tool for 
small businesses.  

1.2.2 

Investors' lack of trust to engage on a cross-border basis 

Even though crowdfunding has been rapidly expanding, the vast majority of investors remain cautious about its risks. 
As suggested in Figure 6, the level of cross-border inflows (cross-border investments) is only a small fraction of total 
volumes, even lower than the outflows, i.e. how much fundraising goes to non-domestic projects. Its size relative to 
the total has not changed since inception in 2013.. The share of cross-border activity has remained stable at very low 
level (roughly 4% for inflows and 7% for outflows) between 2013 and 2015. A full understanding of the project risk 
associated with crowdfunding is often constrained by the lack of metrics, due to the modern nature of this financing 
tool.26  Nonetheless,  a  survey  conducted  by  the  Cambridge  Centre  for  Alternative  Finance  shows  that  the  chief 
concern for the platforms is the reliability of crowdfunding platforms themselves. The graph below shows that three 
most perceived threats for investors are the collapse of a platform due to malpractice, project fraud and an increase 
in  project  failure-default  rates.  Only  the  latter  can  be  directly  assessed  through  metrics.  In  case  of  frauds  or 
malpractice,  the  platform  could  be  victim  itself  of  the  fraudulent  behaviour  of  the  project  promoter,  especially 
without obligations and liability for the latter. 

Figure 8. Industry perceived risks to future growth of the alternative finance sector 

The collapse of one or more well-known platforms
due to malpractice

Notable increase in default rates/business failure
rates

Fraud involving one or more high-profile
campaigns/deals/loans

Changes to regulation at a national level

Cyber security breach

Changes to regulation at a European level

Potential 'crowding out' of retail investors as
institutionalisation accelerates

High or very high Risk

Medium Risk

Low or very low risk

0%

20%

40%

60%

80%

100%

Source: University of Cambridge ( 2017). 

26 There is, nonetheless, some preliminary evidence that the returns from investment-based platforms may resemble those of 
venture capital investment. 

25 

 
 
 
                                                            
Research  indicates  that  there  is  limited  confidence  for  cross-border  investment  in  particular.  As  reflected  in  a 
targeted  survey  designed  by  the  Financial  Services  Users  Group  and  the  European  Crowdfunding  Stakeholders 
Forum,  there  is  a  clear  lack  of  trust  towards  platforms  established  in  neighbouring  Member  States.  Figure  9 
illustrates  that  71%  of  lending-based  platform  users  and  42%  of  equity  platform  users  would  not  invest  with  the 
same confidence, if the platform was not established within their home jurisdiction.  

Figure 9. Percentages of responses to the question: "Would you invest with the same confidence through platforms 
established in another EU Member State?" 

40%

35%

30%

25%

20%

15%

10%

5%

0%

36% 

Equity

Lending

34% 

31% 

20% 

13% 

15% 

36% 

11% 

YES, I already do
invest through
platform(s)
established in a
country different from
my country of
residence.

YES, I would invest
with the same
confidence.

I would invest some
money through
foreign platforms, but
not as much as
through domestic
ones.

NO, I would not invest
through foreign
platforms

1% 

1% 

No response

Source: European Crowdfunding Network and Osborne Clarke (2017), "Identifying market and regulatory obstacles to 
cross-border development of crowdfunding in the EU" 

The  mistrust  towards  foreign  platforms  may  reflect  concerns  about  weak  governance  practices,  notably  in  areas, 
such as risk management or the prevention  of conflict or misalignment of interests. Continuous monitoring of the 
sector and the independent initiatives adopted by the Member States have shown27 that authorisation, organisation 
and  conduct  of  business  requirements  for  crowdfunding  platforms  within  the  Member  States  vary  considerably 
(please Annex 1 for an overview of selected Member States). Targeted consultations with lending-based platforms 
also pointed out differences in the treatment of professional investors, who may be required to check compliance 
with  know-your-customer  rules  in  multiple  (EU)  legislations  that  are  implemented  nationally  (such  as  anti-money 
laundering legislation or the E-Commerce Directive). As the investor would be facing high cost, vis-à-vis the size of 
the investment, platforms shall be allowed to discharge these obligations, but this is not always the case.  In some 
Member  States,  there  is  currently  no  or  unclear  application  of  Anti-money  laundering  rules  to  lending-based  or 
investment-based  (in  non-transferable  securities)  crowdfunding  platforms,  which  are  in  some  cases  shifted  onto 
professional investors investing on these platforms (from their home authority). This complexity fosters uncertainty 
that increases investors' distrust to engage cross-border via these platforms. 

An analysis of the different disclosures & safeguards applied by the Member States was carried out in a recent report 
commissioned  by  the  European  Commission.  28  The  study  showed  that,  although  most  countries  have  a  certain 
system  for  safeguarding  against  these  risks  in  place,  the  approaches  can  be  very  different  and  thus  the  systems 

27 Commission Staff Working Document, "Crowdfunding in the EU Capital Markets Union" May 2016. 
28  European  Crowdfunding  Network  and  Osborne  Clarke,  "Identifying  market  and  regulatory  obstacles  to  cross-border 
development of crowdfunding in the EU", 2017. 

26 

 
 
 
                                                            
diverge.  The  divergence  of  the  national  approaches  towards  authorising  and  monitoring  platforms  creates 
uncertainty  regarding  the  level  of  scrutiny  they  are  subject  to  within  a  neighbouring  jurisdiction.  Given  that  a 
different system is applied within each regime of the EU28, the average retail investor may not be able to devote 
sufficient resources to finding and validating information on the applicable safeguards. As a result, he may choose to 
remain  and  invest  within  his  home  jurisdiction.  Furthermore,  there  are  reputational  risks  which  may  result  in 
scandals within one jurisdiction creating mistrust towards the whole crowdfunding sector. The Trustbuddy Scandal 
of 2015 29is said to have had a reputational effect on other Scandinavian platforms as a whole. 

Concerns  regarding  transparency  and  project  fraud  are  well-grounded,  as  investors  may  not  have  sufficient 
information  (and  often  capability)  to  make  proper  risk  assessments.  Although  widely  spread,  fears  of  direct  fraud 
have  not  manifested,  it  remains  uncertain  as  to  whether  investors  receive  sufficient  information  on  the  projects 
prior  to  investing  and  whether  platforms  perform  sufficient  pre-screening.  A  solid  approach  would  be  to  rely  on 
other  measures  such  as  risk  warnings,  funders'  categorisation  and  funders'  tests,  due  diligence  as  well  as  softer 
disclosure requirements. 

Although with the same objective, Member States have taken different approaches towards reaching this goal. For 
example,  as  regards  fundraisers'  disclosure  to  funders  -  platforms  are  expected  to  follow  certain  procedures 
regarding this information flow. Common basic information is that fundraisers are obliged to disclose information to 
funders concerning their ID and business in a fair and not misleading way. However, differences exist in the way this 
disclosure is filed and the information disclosed. Two Member States have designed a template which must be filed 
by fundraisers. In another Member State, fundraisers are obliged to file a three-page fact sheet, if no prospectus is 
required,  where  they  disclose  information  about  their  business.  In  some  other  countries,  the  regulators  authorize 
platforms  to  check  for  the  complete  and  accurate  information  provided  by  fundraisers.  Similar  principals  apply  to 
prescribed due diligence procedures by the Member State. As highlighted in the recent report on barriers to cross-
border crowdfunding, these can vary considerably.30 This creates an issue of scalability as  due diligence and other 
procedures are often an essential part of a platforms' business model. It has also been observed that some platforms 
carry out high-level due diligence on their listed projects, however do not disclose the information due to fears of 
legal suit.   

Diverging measures of investor protection create unnecessary confusion for retail investors that have to familiarise 
with  different  systems.  Prospective  and  current  investors  demonstrate  a  lack  of  trust,  as  they  may  not  receive 
sufficient  information  about  the  returns  and  risks  of  the  projects.  This  uncertainty  is  further  increased  as  the 
conducted  due  diligence  and  presented  information  are  often  carried  out  in  different  ways.  This  results  in  high 
search costs that defer investors who would otherwise be willing to invest in other Member States. The issue of trust 
is  also  highly  applicable  in  defining  the  selection  criteria  used  in  cases  where  automatic  decisions  on  investors' 
money  are  taken  by  the  platform.  The  issue  of  liability  of  the  platform,  when  provide  discretionary  services,  goes 
down to delineate the responsibility of fair representation between the project owner and the platform. Uncertainty 

29  In  2014  Trustbuddy,  a  Scandinavian  peer-to-peer  lending  platform  filed  for  bankruptcy.  The  company  had  been  a  novel 
success story in the lending space and had become the first publicly traded crowdfunding platform as they listed on the NASDAQ 
OMX  Nordic  exchange.    With  the  appointment  of  a  new  CEO  and  an  overhaul  of  the  management  team  just  months  later,  a 
review of the books uncovered a 44 million SEK (EUR 4,6 mil) discrepancy that had likely been there since the companies early 
days. Not soon after the funds that the company held were frozen (including the nearly EUR 2 mil that were funded by lenders, 
but not yet assigned to any borrowers), the National Authorities forced the company to shut down operations and just days later 
the company had filed for bankruptcy. 
30 In one Member State, platforms do not have to follow a specific due diligence procedure but they must disclose information 
to  potential  funders  on  which  due  diligence  procedure  is  undertaken.  In  another  Member  State,  platforms  are  obliged  to 
predefine  the  due  diligence  criteria  they  follow.  In  a  third  &  fourth  Member  State,  platforms  must  inform  potential  funders 
about the due diligence process they follow. In a fifth Member State, platforms are restricted from performing and sharing due 
diligence  under  the  crowdfunding  exemption,  but  need  to  publish  relevant  information  to  investors  to  enable  their  informed 
decision making 

27 

 
 
                                                            
regarding investor rights, the responsible governing authorities and tax treatment in a cross-border setting will also 
further deter potential investors. Some platforms in targeted consultations also voiced investors' concerns about the 
need to ensure a minimum regulatory framework to create sufficient trust in a platform, especially for professional 
investors. Risk of regulatory arbitrage can have a direct impact on investors' trust, leading to underinvestment. 

This  conclusion  was  shared  by  some  of  the  respondents  to  the  Inception  Impact  Assessment,  one  of  which, 
representing  a  consumer  protection  organisation,  observed  that  divergent  or  even  absent  national  approaches 
create regulatory loopholes and spur regulatory arbitrage, bounding consumers to invest in projects they shouldn’t, 
whereas  a  clearer  regulatory  environment  would  provide  more  choice,  grant  higher  standards  of  consumer 
protection and thus encourage investments. 

28 

 
 
2  Why should the EU act? 
The  legislative  action  to  be  examined  would  lay  down  uniform  rules  on  crowdfunding  platforms  for  certain 
crowdfunding activity when operating cross-border. It aims at ensuring that such platforms are subject to consistent 
rules across the EU and that they are identifiable as such by investors throughout the EU. At the same time it also 
aims at ensuring a level playing field between different crowdfunding providers, irrespective of market size or legal 
framework  applicable  in  their  home  market.  It  aims  therefore  at  establishing  uniform  conditions  for  platforms 
operating  with  an  EU  label.  This  proposal  thus  harmonises  the  operating  conditions  for  relevant  players  in  the 
crowdfunding market, for the benefit of fundraisers and investors. Legislative action to establish an EU framework 
for crowdfunding services examined in this report is based on Article 114 of the TFEU. 

2.1  The necessity of an EU action 

While  many  Member  States  leave  the  activity  unregulated,  others  have  put  in  place  stringent  bespoke  national 
frameworks  to  cater  specifically  for  crowdfunding  activities.  Large  differences  in  regulatory  standards  adopted  by 
Member States continue to increase market fragmentation resulting in a lack of economies of scale and inconsistent 
approaches to transparency and financial risks, as explained in section 1.2. Different regulatory approaches in this 
area create an un-level playing field, erecting additional barriers to a Single Market in financial services and products. 
Member  States  have  already  taken  divergent  and  uncoordinated  action  to  develop  national  crowdfunding 
regulation,  and  it  is  likely  that  this  development  will  continue.  Divergences  in  such  rules  increase  costs  and 
uncertainties  for  platforms,  fund  raisers,  and  investors,  and  represent  an  impediment  to  the  further  cross-border 
development of the market. These divergences represent an obstacle to the establishment and smooth functioning 
of  the  Single  Market.  Transparency  and  prudential  rules  may  be  necessary  to  ensure  investor  protection  and 
financial stability across the EU, while ensuring a level playing field among the different platforms established in the 
different Member States.  

While there is no coordination effort undertaken so far among Member States on rules for lending services by non-
deposit-taking  institutions,  the  application  of  MiFID  rules  to  investment-based  crowdfunding  platforms  is 
insufficiently uniform, as MiFID was not constructed to ensure proportionality to crowdfunding services and the use 
of discretions to ensure that proportionality by Member States (such as article 3 exemption) has resulted in further 
divergences and impediments to cross-border activity via a MiFID passport. In effect, many countries have decided 
to  adopt  an  ad  hoc  regime,  to  use  the  article  3  MiFID  exemption  for  two  specific  investment  services,  or  not  to 
regulate at all this area. In one Member State, platforms do not have to follow a specific due diligence procedure but 
they  must  disclose  information  to  potential  funders  on  which  due  diligence  procedure  is  undertaken.  In  another 
Member  State,  platforms  are  obliged  to  predefine  the  due  diligence  criteria  they  follow.  In  other  ones,  platforms 
must  inform  potential  funders  about  the  due  diligence  process  they  follow.  In  one  more,  platforms  are  restricted 
from  performing  and  sharing  due  diligence  under  the  crowdfunding  exemption,  but  need  to  publish  relevant 
information to investors to enable their informed decision making 

This situation restricts access to early stage capital markets financing only to bigger EU countries and investors have 
limited  accessibility  and  ability  to  diversify  risk  in  the  same  way  irrespective  of  where  they  are  geographically 
located. In effect, there are important and innovative sectors, like technology, whereby the geographical proximity is 
not a key factor to invest, hence the reliance on an international investor base. This cross-border investor struggles 
to  emerge  on  European  crowdfunding  platforms  due  to  cross-border  barriers  highlighted  above,  despite  the  fast 
growth  of  domestic  markets.  As  a  result,  the  inability  of  investors  to  engage  cross-border  is  capable  to  generate 
extra  costs  for  businesses.  In  effect,  anecdotal  evidence  and  desk research  show  that  many  micro  firms  decide  to 
incorporate  the  legal  entity  in  the  country  where  the  crowdfunding  market  is  more  developed  (like  the  United 
Kingdom). While this could be influenced also by other factors, such as the local financial ecosystem, this also means 
that small businesses in sectors that do not allow mobility of production factors would not be able to access these 
29 

 
 
funding  opportunities,  unless  an  efficient  domestic  crowdfunding  market  already  exists.  Hence,  the  inability  of 
platforms and investors to move cross-border may inhibit access for companies in a large set of sectors, especially in 
capital intensive ones (e.g. manufacturing), cutting them out of this market. 

These  variations  also  create  an  un-level  playing  field  for  platform  providers  depending  on  their  location,  and  by 
fragmenting  fund  models  along  national  lines  erect  additional  barriers  to  a  Single  Market  in  financial  services  and 
products.  Key  drivers  include different  interpretations  and  treatment of  crowdfunding service  providers  as well as 
additional mistrust that this creates for investors in a cross-border setting. Investor preference for platforms within a 
familiar environment is thus preferred. 

2.2  The value added of an EU action 

EU  action  would reduce significantly the  complexity,  financial  and administrative  burdens  for  all  key stakeholders, 
i.e. crowdfunding platforms, project owners and investors at the same time ensuring a level playing field among all 
the  service  providers  using  the  same  EU  label.  Furthermore,  harmonising  prudential  rules,  operational  conditions 
and rules on transparency for all the relevant players would bring clear benefits to investor protection and financial 
stability.  By  harmonizing  the  essential  features  that  constitute  a  crowdfunding  platform,  the  proposal  aims  at 
establishing a uniform framework in relation to the definition of such crowdfunding activity, clearly setting common 
rules in specific areas. 

Newly  emerging  evidence  in  stakeholders'  consultations  and  recent  developments,  such  as  the  departure  of  the 
United Kingdom from the European Union (leading roughly 80% of the European market to move into a third country 
regime), further justifies action at this point in time. The purpose of the action at EU level is to protect the public 
interest  against  these  problems  by  contributing  to  the  effective  and  efficient  development  of  the  crowdfunding 
services in the EU, protection of investors, stability and effectiveness of the financial system, for the Union economy, 
its citizens and businesses. This impact assessment accompanying the Commission's proposal contributes to greater 
understanding of why these objectives are better achieved at Union level. 

Therefore, the establishment of an EU framework for crowdfunding services would fall under the competence of the 
EU according to Article 114 of the Treaty of Functioning of the European Union (TFEU). 

30 

 
 
3  Objectives: What is to be achieved? 
The  general  objective  is  to  increase  the  efficiency  and  diversification  of  the  EU's  capital  market  by  eliminating 
problems to the development of a cross-border pool of financing for businesses. A single market for crowdfunding 
services would also provide access to alternative financing tools to expensive short-term unsecured bank lending for 
SMEs, especially for startups and other fast-growing companies, while ensuring a high level of investor protection. 
Thus,  the  initiative  will  support  the  CMU  objectives  of  establishing  a  single  EU  capital  market  and  strengthening 
market-based  finance.  In  view  of  the  key  role  of  innovative  firms  for  job  creation  and  growth,  the  initiative  also 
envisions to contribute to the wider EU objective of creating jobs and boosting growth. 

In order to achieve the overarching goals above, the following specific objectives need to be achieved: 

1.  Enabling platforms to scale up (objective 1); and 

2.  Enhancing  investors'  trust,  by  strengthening  platforms'  integrity  (objective  2a)  and  transparency  for 

investors (objective 2b).  

Enabling platforms to scale throughout the EU by creating a more proportionate regime. For instance, proportionate 
licensing  requirements  would  enable  cross-border  business  without  requiring  further  authorisation  in  each  EU 
country, thereby facilitating the attraction of a critical mass of investors and fundraisers matching the right investors 
with the right fundraisers across the EU. 

Enhancing trust may require to strengthen platforms' integrity and to increase transparency for investors, for what 
concerns the project, the instruments being intermediated and the processes performed by the platform. The sector 
adherence to a common set of standards may promote its reputation and help establish itself as a stable and reliable 
source  of  alternative  finance.  Proper  levels  of  governance  requirements,  to  ensure  that  management  is  fit  and 
proper,  and  adequate  internal  controls  are  important  step  to  achieve  the  second  specific  objective.  Appropriate 
levels  of  information  disclosures  to  ensure  that  prospective  and  current  investors  receive  sufficient  information 
about the returns and risks of the projects, together with fitting safeguards to prevent fraudulent activities by the 
platforms as well as by the project owners (fundraisers), are paramount. 

31 

 
 
4  Policy Options and analysis of impacts  
The  following  section  covers  the  assessment  of  the  scope  of  the  initiative  and  of  the  policy  options  to  meet  the 
objectives, with their impacts.  

4.1  Scoping the policy action 

The  policy  action  would  exclude  donation,  reward  and  lending  to  consumers  for  consumption 
purposes from the scope. Projects below EUR 1 million would qualify for crowdfunding services under 
the EU regime, which include reception and transmission of orders and placing of securities without 
firm commitment. The list of products to be covered includes transferable securities, loan agreements 
and other credit intermediation products. 
The following sections discuss three aspects that help to define the scope of the policy intervention. This initiative 
falls within the remit of the Capital Markets Union (CMU) Action Plan, which has been recently reassessed with its 
Mid-Term  Review.  The  target  of  this  initiative  is  thus  to  further  the  European  Union's  goal  to  develop  a  more 
integrated  market  for  capital  to  counter-balance  overreliance  on  bank  finance  and  produce  more  private  risk 
sharing, which can help to stabilise Europe's financial system, as well as more risk capital for European businesses (in 
particular,  SMEs).  One  of  the  means  of  achieving  this  goal  is  the  development  of  a  viable  market  for  alternative 
finance,  such  as  crowdfunding.  More  specifically,  the  policy  action  wants  to  enable  crowdfunding  to  increasingly 
become  a  stable  source  of  early-stage  financing  for  businesses,  which  could  complement  bank-based  short-term 
funding (e.g. bank overdrafts or loans).   

4.1.1  Crowdfunding models 

Crowdfunding models can be clustered in four groups: donation, reward, lending and investment-based.  

The  investment  and  lending-based  crowdfunding  models  offer  a  product  with  a  financial  return,  which  by  nature 
relies  on  a  future  cash  flow  stream.  This  characteristic  structurally  produces  additional  information  gaps  that 
typically require a different regulatory intervention than consumer protection regimes. In this case, the combination 
of the crowdfunding model with a dispersed investment structure (and small ticket size that offers limited incentives 
to engage in monitoring) and a financial product calls for a targeted intervention to address risks for cross-border 
market stability and investor protection, which may not be sufficiently (or too aggressively) addressed under current 
national regimes. 

Crowdfunding via lending platforms (also called peer-to-peer lending platforms) can provide funds to businesses, as 
well as individuals. A further distinction is needed in the case of lending to individuals, as this can entail both lending 
to natural persons for business purposes (e.g. for purchasing equipment needed to carry out a business, such as an 
ice-cream van) or for personal consumption (e.g. travel, goods, etc), also called 'consumer lending'. The involvement 
of a consumer, receiving a loan for personal consumption and operating outside of professional capacity, places this 
activity  within  the  remit  of  the  Consumer  Credit  Directive.  In  case  of  a  consumer  receiving  a  loan  to  purchase  an 
immovable property, this activity falls within the remit of the Mortgage Credit Directive. Given that these are already 
regulated  activities  (even  though  only  from  the  lender's  perspective)  with  a  clearly  local  dimension  in  terms  of 
operations and risk assessment, as well as lower ticket sizes for consumer credit compared to other crowdlending 
activities  (on  average  –  EUR  9  58531),  inclusion  of  this  business  model  would  not  be  warranted.  Inefficiencies  in 
providing consumer credit (including through the use of crowdfunding platforms) are already being assessed as part 

31 Cambridge Centre For Alternative Finance report. 

32 

 
 
                                                            
of the Retail Financial Services Action Plan32 and will feed into the forthcoming evaluation of the Consumer Credit 
Directive. 

In assessing whether or not to include donation-based crowdfunding, the Commission has pointed out in its Report 
on the assessment of risks of money laundering and terrorist financing affecting the internal market and relating to 
cross-border activities, that all forms of crowdfunding are significantly vulnerable to money laundering and terrorist 
financing –COM(2017)340 and SWD(2017)241. Part of the vulnerability was identified with the lack of a horizontal 
framework on crowdfunding platforms. For this reason, the Commission has proposed in the same document that 
Member States should consider applying anti-money laundering rules to crowdfunding platforms.  

Nevertheless, donation crowdfunding falls outside the scope of a European action, as it does not entail any 'tangible' 
return  over  the  investment,  whether  financial  or  non-financial.  Reward  crowdfunding  does  not  entail  a  financial 
return,  even  though  it  is  an  attractive  funding  tool  for  businesses.  To  preserve  consistency  among  the  European 
legislative  frameworks,  the  existing  consumer  protection  regime  would  still  apply  to  those  models.  Less  clear  the 
application  of  legislation  on  money  laundering  and  terrorism  financing  to  donation  crowdfunding  under  existing 
national  legislations  and  supervisory  arrangements.  Insufficient  basic  transparency  can  undermine  investors'  trust 
and generate spillover effects on the stability of the Single Market. However, the donation crowdfunding industry is 
marginal  and  the  average  size  of  these  firms  is  typically  below  5  employees.  In  that  respect,  while  extending  the 
policy  intervention  applicable  to  crowdfunding  platforms  providing  investment  services  over  products  with  a 
financial return, to ensure application of Anti Money Laundering (AML) and Counter-Financing Terrorism (CFT) rules, 
would have represented merits in term of level playing with other financial services, it has been considered as too 
premature  at  this  stage.  This  position  does  not  prevent  the  Commission  to  envisage  future  policy  actions  on  that 
matter. While application of AML and CFT is paramount, a targeted regulatory response would be more appropriate. 
Inclusion  of  donation  services  within  the  current  initiative  would  result  in  a  disproportionate  action  that  would 
hinder and probably impede completely the provision of the service at domestic and cross-border level. 

4.1.2  Fundraising threshold 

Crowdfunding is a financial service, so policy intervention does not only need to define the nature of a crowdfunding 
activity (see previous section), whose core feature is intermediating funding between a dispersed issuer and investor 
structure,  but  also  the  conditions  to  avoid  regulatory  circumvention  of  well-established  legislative  frameworks  for 
financial services, like investment services legislation (Markets in Financial Instruments Directive, MiFID). On the one 
hand, a defined 'issuance' or 'fundraising' size limit would narrow the scope to relevant crowd business activity and 
minimise the risk of circumvention. On the other hand, a limit on issuance size may potentially curtail crowdfunding 
issuance in specific capital intensive sectors, where the funding size is structurally higher. 

This  upfront  scoping  relies  on  the  recent  impact  assessment  of  the  new  Prospectus  Regulation33  (PR),  which  has 
introduced a crowdfunding exemption from prospectus requirements for securities offers with a total consideration 
below  EUR  1  million  (during  a  12  month  period).34  This  threshold  was  developed  using  data  from  a  public 
consultation where respondents indicated that offerings fluctuates between EUR 50 000 and EUR 1 500 000 as well 
as  market  surveys  that  indicated  average  offering  sizes  to  be  between  EUR  220  000  and  EUR  250  000.  The  final 
number was decided during negotiations. According to the latest available market data, the average issuance of the 

32 Action 7 of the Retail Financial Services Action Plan. 
33 http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2015:0255:FIN 
34 Article 1(3) of the (EU) 2017/1129 New Prospectus Regulation does not apply to an offer of securities to the public with a total 
consideration  in  the  Union  of  less  than  EUR  1  000  000,  which  shall  be  calculated  over  a  period  of  12  months.  If  specific 
conditions are met, Member States can raise this threshold for prospectus up to EUR 8 million. 

33 

 
 
                                                            
business models with the largest ticket sizes is below the EUR 1 million threshold (investment-based crowdfunding 
averaged EUR 459 003 and peer-to-peer business lending averaged EUR 99 985 per fundraiser in 2015).35  

In  order  to  provide  a  passporting  capability  for  platforms,  as  well  as  to  ensure  coherence  with  other  financial 
legislation, the proposal should thus cover security and other products (as defined in the following section) issuances 
with a total consideration of below EUR 1 million over 12 months. Above EUR 1 million, there is national discretion 
whether or not to require a prospectus for public issuances (under conditions set by the Prospectus regulation). Also, 
cross-border  offerings  for  issuances  in  that  range  would  be  under  the  EU  Prospectus  Regulation.  The  Prospectus 
provides appropriate space for sufficiently large funding rounds to be raised without mandating production of costly 
legal material and application of burdensome legal obligations, which would be disproportionate to the level of risk, 
size and activity of crowdfunding platforms. 

As  this  policy  option  builds  upon  regulating  the  provision  of  the  service,  the  threshold  would  apply  also  to  non-
security-based  financial  products  (e.g.  loans),  i.e.  irrespective  of  the  product  actually  negotiated  on  the 
crowdfunding  venue.  Any  issuance  above  this  threshold,  for  the  provision  of  services  discussed  in  the  following 
section,  does  thus  warrant the application  of  more  mature and  complex regulatory  regimes,  like  MiFID  or  a  more 
mature credit intermediation regime, because of the spillover effects that this greater amount would generate on 
risks for investor protection and financial market stability.  

4.1.3  Services  

Crowdfunding involves several different processes and transactions and an effective regulatory framework needs to 
be clear about what crowdfunding is and what is not. While preventing regulatory arbitrage risks within the financial 
sector,  a  limited  number  of  activities  can  be  identified  as  distinguishing  features  of  crowdfunding  platforms, 
leveraging on the existing framework for investment services under MiFID,36 which defines services that can qualify 
as  European  crowdfunding  services.  Upon  consideration  of  different  business  models,  as  well  as  Member  State 
experience  in  creating  their  own  bespoke  regimes,  two  types  of  investment  services  can  be  used  to  provide  a 
principle-based  definition  of  crowdfunding,  and  therefore  be  potentially  subject  to  a  lighter-touch  and  enabling 
framework: 1) Reception and transmission of orders (RTO); and 2) Placing of securities without a firm commitment 
basis (PSWFC). 

In  several  occasions,  ESMA  has  confirmed  that  almost  all  investment-based  crowdfunding  platforms  mainly  offer 
reception and transmission of orders as core service.37 In addition, placing of securities without a firm commitment 
basis is also included, because, as ESMA pointed out,38 in the case of crowdfunding the reception and transmission of 
orders and placing of securities without a firm commitment can appear as the same activity, since the distribution 
element  of  the  offer  is  embedded  in  the  platform.  Other  services/activities,  such  as  portfolio  management, 
investment  advice  and  execution  of  orders  on  behalf  of  clients,  are  usually  added  on  top  of  the  core  service  and 

35University  of  Cambridge  Judge  Business  School,  "Sustaining  momentum,  the  2nd  European  Alternative  Finance  Industry 
Report", September 2016. 
36 Please, see Directive 2014/65/EU, Annex I, section A for the list of investment services and activities. 
37  Please,  see  ESMA  responses  to  the  CMU  Green  Paper  (2015)  and  CMU  Mid-term  Review  (2017),  available  at  respectively 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-
856_ann_1_esma_response_to_ec_green_paper_on_cmu_-_crowdfunding_survey.pdf 
https://www.esma.europa.eu/sites/default/files/library/esma31-68-147_esma_response_to_cmu_mid-term_review.pdf. 
Please,  see  also  ESMA,  Opinion  on  Investment-based  crowdfunding,  ESMA/2014/1378,  18  December  2014,  p.  4  '[..]the 
fundamental  MiFID  service/activity  in  the  ‘typical’  investment-based  crowdfunding  platform  is  reception  and  transmission  of 
orders[..]'. 
38 'In the case of crowdfunding, it appears that the same activity could potentially be considered as reception and transmission 
of  orders  or  as  placing  without  a  firm  commitment  basis.'  See  ESMA,  Advice  on  Investment-Based  Crowdfunding, 
ESMA/2014/1560, 18 December 2014. 

and 

34 

 
 
                                                            
would  be  subject  to  the  full  MiFID  regime  and  other  existing  EU  regimes.  As  the  definition  of  advice  is  still  not 
sufficiently  narrow  across  member  states,  its  inclusion  in  the  list  of  crowdfunding  services  would  create  risks  of 
regulatory arbitrage. If a platform wishes to provide additional services, it would then be subject to specific financial 
services  regulations  (i.e.  MiFID,  AIFMD,  PSD2).  For  lending-based  platforms,  the  lack  of  any  European  regime  (as 
discussed  in  section  1.2.1)  leaves  space  for  the  policy  action  to  define  the  most  suitable  definition  of  lending 
activities that would suit the spirit of the chosen option. The EBA definition, discussed in section 1.1.1.1, i.e. an 'open 
call  to  the  wider  public  by  fund  seekers  through  a  third  party,  typically  an  on-line  platform,  to  raise  funds  for  a 
project, in the form of a loan agreement, with a promise to repay with (or in certain cases without) interest',39 could 
be a workable broad-enough definition to capture lending-based platforms in our policy options.  

An alternative option would be to use only the EUR 1 million threshold to define the scope of the policy action, so 
regulating all kinds of investment services (beyond the two identified above) and lending activities under a common 
EU  crowdfunding  regime  (below  the  threshold).  On  the  one  hand,  this  would  increase  the  possibility  for 
crowdfunding  to  develop  multiple  variations  of  business  models  under  one  set  of  rules.  On  the  other  hand,  this 
possibility  would  raise  two  important  issues  that  leads  to  exclusion  upfront.  First,  it  would  heighten  risks  of 
regulatory  circumvention  of  the  established  European  financial  services  regulatory  framework,  as  it  would  lead  to 
more  fragmented  issuance  below  EUR  1  million  to  be  intermediated  via  crowdfunding  structures  and  additional 
enforcement  issues  with  more  complex  services  (e.g.  portfolio  management),  for  which  it  would  be  difficult  to 
monitor  the  application  of  the  EUR  1  million  threshold.  Second,  it  would  increase  set  off  significant  investor 
protection issues, by allowing complex services to be marketed in the same way very simple ones, like RTO, are. The 
high risk of frauds and misselling leads us to exclude this sub-option upfront. 

4.1.4 

Instruments 

For what concerns the instruments traded on crowdfunding platforms, they can be either (transferable) securities, 
loan agreements or other credit intermediation instruments. National platforms currently face scalability challenges 
due  to  the  specific  instruments  they  use  in  their  home  market.  Furthermore,  in  many  Member  States  companies 
(project owners) are structured as a limited company (e.g. GmbH) or a limited partnership (e.g. KG) whose shares do 
not  constitute  'securities'  within  the  meaning  of  MiFID,  but  they  are  constructed  as  a  loan.  Hence,  the  relevant 
European  legislation  (e.g.  the  Prospectus  Regulation  and  the  Markets  in  Financial  Instruments  Directive)  may  not 
apply  to  some  instruments  in  certain  jurisdictions.  It  is  thus  important  to  adopt  a  sufficiently  comprehensive 
approach  towards  instruments  in  order  to  ensure  both  scalability  of  operations  and  mitigation  of  circumvention 
risks.  The definition of products that are intermediated on crowdfunding platforms (e.g. business loans, securities, 
royalties, among others) is thus fairly broad in order to cover a sufficient number of business models, while ensuring 
legal certainty via a strict definition of the services that the platform can perform. The exclusion of non-transferable 
securities lie in the structure of the product that should not allow transferability, plus the risks that these products 
may  have  in  terms  of  investor  protection,  by  locking  in  investors  with  limited  exit  options.  The  exclusion  is  also 
coherent  with  the  established  EU  legal  framework  and  pre-empts  the  legal  constructs  that  may  hide  risks  for 
investors due to their complexity. 

4.2  Baseline scenario – no EU framework (option 1)  

In  line  with  the  overview  of  legislative  frameworks  (see  annex  5  for  a  summary  overview),  the  policy  baseline 
scenario is enshrined  in a list of national regimes (for those countries that regulate crowdfunding), which embeds 
the following key features: 

1.  The authorisation procedure; 

39 EBA, Opinion on lending-based crowdfunding, EBA/Op/2015/03, 26 February 2015. 

35 

 
 
                                                            
2.  The governance and operations of a crowdfunding platform; and 

3.  The information disclosure to investors and business conduct. 

The baseline scenario assumes that no policy action(s) are taken at the European level, which would aim to address 
the problems set out in section 1.2. While the baseline would allow for flexibility to act at a later stage, when the 
market  is  more  mature  and  has  found  a  stable  structure,  this  implies  that  a  fragmented  and  complex  regulatory 
framework  for  crowdfunding  platforms  would  persist  across  Member  States  (or  further  fragment  as  a  growing 
number  of  Member  States  are  considering  bespoke  regulation).  Extra  costs  for  businesses  and  operators  may 
continue  to  increase  to  even  higher  levels.  In  terms  of  authorisation  for  investment-based  crowdfunding,  some 
Member States would continue to draw on MiFID article 340 to carve out crowdfunding from the  Directive's scope 
and  preserve  (or  set-up)  their  bespoke  national  regimes.  Other  Member  States  would  cover  crowdfunding  under 
their  respective  transpositions  of  the  MiFID.  In  theory,  the  latter  approach  opens  the  possibility  to  passport 
crowdfunding activities across the EU. In practice, however, MS with national bespoke regimes would  continue to 
disallow  crowdfunding  platforms  to  avail  of  such  passporting  rights  in  their  jurisdictions.  Similar  situations  would 
persist  across  other  relevant  regulatory  regimes,  such  as  Payment  Services  Directive,  Prospectus  Directive  and 
Alternative  Investment  Fund  Managers  Directive,  in  that  member  states  would  choose  whether  or  not  to  apply 
certain  provisions  with  regard  to  crowdfunding.  As  a  result  of  the  heavily  diverging  regulatory  approaches  taken, 
there  would  be  no  single  market  for  crowdfunding  in  the  EU  and  operators  would  be  inhibited  from  growing  and 
expanding  their  platforms  seamlessly  across  MS.  The  regulatory  fragmentation  would  generally  prevent  platform 
operators to expand their offerings into other MS without making substantial modifications to operating protocols, 
consumer protection measures and/or other administrative aspects. These changes are not only costly but also make 
it difficult or, at times, even impossible to channel investments and fundraising projects in different MS through a 
common platform. For lending-based platforms, the implementation of quite different national regimes, especially 
when combined with the regime for investment-based platforms, will make the system more complex and unable to 
overcome (if not magnifying) the problems highlighted in section 1.2. 

Operators  would  not  only  face  substantial  operational  and  compliance  costs  on  cross-border  market  entries  but 
would  also  fail  to  reap  increased  network  externalities  if  they  cannot  on-board  projects  and  investors  onto  their 
initial platform. These costs and missed network effects would continue to severely limit the incentives for operators 
and  investors  to  engage  in  cross-border  activities.  An  additional  hindrance  is  that  investors  would  face  varying 
degrees  of  legal  uncertainty,  if  and  where  investors  and/or  fund-seekers  access  platforms  from  another  Member 
State.  Operators  may  also  find  that  the  fragmented  regulatory  framework  supresses  the  cross-border  demand  for 
their services, lowering the incentives for such offerings yet further. As authorisation, organisation and conduct of 
business requirements for crowdfunding platforms within the Member States would continue to vary considerably, 
investors  and  fund  seekers  will  have  difficulties  to  compare  offerings  and  assess  any  associated  risks.  Different 
standards  in  terms  of  transparency,  investor  protection  and  due  diligence  requirements  would  furthermore 
contribute to already existing home and familiarity biases and lower the trust of consumers in cross-border offerings. 
This  is  especially  true  on  the  investor  side,  which  will  generally  be  less  proficient  in  assessing  and  evaluating 
associated risks beyond the standard investment risks.   

These  hurdles  to  cross-border  business  operations  and  consumption  imply  that  the  EU  crowdfunding  market  will 
remain heavily fragmented. Neither platform operators nor fund seekers or investors would be able to benefit from 
a  functioning  single  market.  Crowdfunding  networks  would  essentially  remain  limited  to  their  national  markets, 
which is of particular importance for the future growth of operators based in small MS. Investors and fund seekers 
would be unable to benefit from increased competition, choice  and innovation. Overall, the EU market would not 

40 This article allows member states to exempt firms from the MiFID regime when providing only reception and transmission of 
orders and/or investment advice (but not holding client funds). Some member states, like Germany, France and Italy, have used 
this exemption to carve out a bespoke regime for crowdfunding. 

36 

 
 
                                                            
converge into a single integrated market. It would thereby not operate as efficiently as it could under conditions of 
intensified cross-border competition. A fragmented market would furthermore hinder platform operators to scale up 
and keep pace with larger platforms established in the US and Asia.  

Inaction would also interfere with important market and policy developments. First, most of the market (roughly 70-
80%) is concentrated in one country, the United Kingdom. Without a functioning third country regime, the departure 
of the UK from the EU poses the risk of leaving the EU with even lower scale to deal with the cross-border provision 
of  early  stage  financing  for  businesses  across  Europe.  It  also  raises  questions  about  the  need  for  a  more  uniform 
approach  to  provide  a  framework  to  assess  the  equivalence  of  a  third  country  regime.  Second,  even  though  the 
review of the European Supervisory Authorities (ESAs) aims at improving the capability to analyse risk for consumers 
and investors and promoting more regulatory and supervisory convergence to enable more sustainable cross-border 
integration, inaction would still hinder the ability of the ESAs to promote meaningful supervisory convergence due to 
the severe market fragmentation. Third, inaction would hinder the activity of the FinTech sector, which increasingly 
offers  support  to  the  development  of  crowdfunding  services,  through  the  outsourcing  of  separate  functions  (e.g. 
payment services). A fragmented approach would result in multiple regimes that may or may not be supportive of 
FinTech services, so diluting the 'single market network effect'.   

None  of  the  stakeholders  taking  part  to  the  Inception  Impact  Assessment  consultation  found  option  1  to  be 
preferable, all agreeing on the need for an EU action to ease the scale-up of the platforms' operations. 

4.3  Building  on  reputational  capital:  minimum  standards  with  best 

practices (option 2) 

This  option  would  introduce  minimum  standards  for  crowdfunding  activities,  in  relation  to 
transparency (with the Key Investor Information Sheet, KIIS) and authorisation (notification only with 
ex post review by NCAs). Organisational and conduct requirements are left to either self-regulation or 
national requirements (where available). 
This  policy  option  builds  upon  the  regulatory  approach  applied  in  some  Member  States,  whereby  minimum 
regulatory standards are combined with self-regulatory efforts by the industry. A 'softer' non-regulatory action can 
be excluded upfront, as it won't solve the first problem driver, which lies with different national regimes without a 
minimum level of harmonisation.  

4.3.1  Rationale and key characteristics 

The rationale for this option is that crowdfunding is still an industry in its infancy and should be allowed to develop 
with the least 'regulatory touch', relying as much as possible on industry's best practices and the reputational capital 
that  platforms  have  to  stay  in  business.  The  policy  action  would  thus  foresee  to  establish  minimum  disclosure 
requirements in order to ensure that investors have sufficient information concerning the investment risks they are 
undertaking.  Given  considerations  of  reputational  capital,  platform  operators  already  have  an  incentive  to  ensure 
information  disclosure  between  fund  seekers  and  investors.  This  policy  action  would  only  ensure  that  minimum 
harmonised standards are upheld across all platforms in the EU to deal with the second key problem driver of the 
dispersed investor structure. The disclosure regime could take the form of a Key Investment Information Sheet (KIIS), 
which would offer a standardised template with the minimum information necessary about risk and characteristics 
of  the  instruments  sold  to  investors  (whether  a  share  or  a  loan  agreement,  the  document  will  adapt  its  content 
accordingly).  This  document  could  be  issued  without  pre-approval,  but  only  with  ex  post  monitoring  by  the 
competent authority about its key characteristics (and request to make adjustments, if necessary). 

37 

 
 
 
The first problem driver, concerning with fragmented (licensing) regimes, is dealt with a notification-only procedure. 
No ex ante authorisation would be necessary, except for a notification to the competent authority that business has 
started. The competent authorities would only monitor the implementation of the disclosure standards and ensure 
that the adopted best practices do not clash with other existing regulatory regimes. 

Table 4. Key requirements – Option 2 

Authorisation procedure 

Governance & operations 

Information  disclosure  & 
conduct 

Harmonisation tool 

& 
of 

Best practices 

review  of  best 
ongoing 
disclosure 

Ex  post 
practices 
supervision 
requirements 
Other aspects, such as organisational and business conduct requirements of platforms, would be based on industry 
best  practices  agreed  on  by  industry  (via,  for  instance,  a  code  of  conduct)  and  providing  a  lighter  intervention  to 
address further areas under the problem drivers identified in section 1.2.41  It could be envisaged that there would be 
some light initial screening in this regard carried out by NCAs, after the platform notifies the commencement of the 
business activities. 

Key  Investment  Information 
Sheet (KIIS) 

Directive 

The establishment of minimum disclosure obligations would require the adoption of a Directive. The threshold in the 
Prospectus Regulation for the exemption from prospectus requirements will still apply, with member states deciding 
how to implement it and whether to carve out an additional exemption for crowdfunding offerings between EUR 1 
million and EUR 8 million.42  

4.3.2 

Impacts 

This  policy  option  holds  the  benefit  that  the  crowdfunding  industry  would  be  given  space  and  time  to  further 
develop  its  business  models  without  meeting  stringent  regulatory  requirements  or  authorisation  procedures.  It 
would keep compliance costs at a minimum (cost-efficient), especially for those platforms which today are already 
complying  with  various  national  regimes,  which  would  remain  in  place.  A  harmonised  approach  on  disclosure 
requirements  would ensure  that  investors  and  fund  seekers  can rely  on the same minimum standards  on a  cross-
border basis. This would help to facilitate greater trust in cross-border activity as investors could rely on the same 
standards  when  accessing  platforms  cross-border.  Likewise,  it  would  aid  cross-border  fund  seekers  in  that  the 
information  requirements  would be largely aligned,  meaning  that  different  platforms  could  be tapped  throughout 
the EU without requiring substantial changes in this regard. Platform operators would benefit as well, given that they 
would  need  to  implement  fewer  changes  to  their  platform  setup  when  entering  another  Member  State. 
Furthermore,  as  the  sound  provision  of  information  and  disclosure  to  investors'  lies  in  the  interest  of  platform 
operators, there will be few operators that would be required to make substantial changes to their arrangements. 
This means that the compliance costs would be kept to a minimum.  

The policy action however insufficiently addresses the current regulatory fragmentation, for instance with regard to 
authorisation  requirements.  While  the  option  does  not  hold  any  detrimental  impacts  in  this  regard,  it  would  not 
solve  the  current  issues  arising  from  regulatory  fragmentation.  Operators  would  still  need  to  apply  for  national 
authorisations  in  Member  States  with  bespoke  regimes  already  in  place,  thereby  hindering  cross-border  market 
entry.  Without  EU  rules  granting  passports  to  the  platforms,  authorisation  requirements  are  likely  to  remain 
significantly different across Member States. There is also uncertainty as to how compliance with industry standards 
would be handled and/or supervised.  Such standards would not be binding and would take the form of guidance. 
Member  States  would  still  have  the  possibility  to  impose  binding  standards  at  national  level  on  top  of  these, 

41  The  European  Crowdfunding  Network  is  a  Brussels-based  professional  network  promoting  adequate  transparency,  (self) 
regulation and governance. Their Code of Conduct is available at: http://eurocrowd.org/about-us/code-of-conduct-2/. 
42 Regulation (EU) 2017/112. 

38 

 
 
                                                            
maintaining or amending the national bespoke regimes. In this situation, with major jurisdictions that have already 
implemented a national crowdfunding regime, a self-regulatory approach developed by the industry may also result 
in additional complexity. The difficulty and costs associated with this option would thus not be likely to help improve 
cross-border transactions. Investor confidence would also not be likely to improve under this policy option as a high 
amount of legal uncertainty would remain. 

The  precise  compliance  costs  arising  from  this  policy  option  are  very  difficult  to  assess,  given  that  they  will  vary 
across operators, depending on the current platform specifications. Assuming that 200-250 platforms are captured 
by the initiative43 we estimate total one-off compliance costs to lie in the range of EUR 888,800 – 2,222,00044 or EUR 
4,444 – 8,888 per platform for the necessary IT changes.45 The costs of compiling a single KIIS are estimated at EUR 
3,000  of  which  EUR  1,000  are  regulatory  costs.        There  may  also  be  certain  costs  imposed  on  NCAs.  The  level  of 
these costs will however depend on how compliance with the disclosure requirements would be monitored. These 
costs would be minimal and not exceed supervisory costs of monitoring the operators of a pure order transmission 
broker regulated under MiFID. It should be noted though, that similar costs also arise under the current regulatory 
approach.  In  fact,  depending  on  the  national  regime,  these  costs  may  be  higher  than  those  implied  by  the  policy 
option. Unfortunately, there is not firm level data available that would give possibility to go in greater detail. 

7%  of  respondents  to  the  Inception  Impact  assessment  found  option  2  to  be  preferable,  expressing  a  view  that 
collection  of  best  practises  would  be  more  favourable  to  a  legislative  initiative.  An  association  for  digital 
development suggested that the mapping of best practices (for the industry and the local regulatory regimes) with 
the intent to recommend a set of non-binding standards would be able to achieve the desired effects. According to a 
respondent representing the financial services industry,, a good collection of best practices could be used for setting 
minimum  standards  and  thus  enable  cross  border  operations.  An  organisation  representing  SMEs  argued  that  the 
benefits  of  harmonisation  are  not  clear,  in  the  sense  that  is  uncertain  whether  the  initiative  seeks  to  protect 
investors or the enterprises and regulatory competition between Member States is desirable. 

43 Based on figures in 'ESMA response to the Commission Consultation Document on Capital Markets Union Mid-Term Review 
2017' & Commission calculations based on ECN crowdfunding volumes  
44  Based  on  the  assumption  that  firms  would  require,  on  average,  2-4  weeks  work  of  an  IT  professional  to  implement  the 
necessary changes, assuming an annual cost of EUR 100,000 per IT professional.  
45 It should be noted that many platforms already have arrangements in place providing information on elements which would 
be in the KIIS. Therefore these estimates should be seen as an upper limit. 

39 

 
 
 
 
                                                            
Table 5. Key benefits and costs, by stakeholder type – Option 2 

Investors 

-  Lower  cross-border 
access costs in the form 
of  greater  transparency 
(direct) 
-  Greater  choice  of 
products 
funding 
(indirect) 

-  Reliance  on 
self-
regulatory  mechanisms 
for 
service  provision 
(excluding disclosure) 

Benefits 

Costs 

Platforms 
-  Greater  ability  for  platforms  to  adapt  their  business 
models (if no conflicting national regimes; indirect) 
-  Low  compliance  costs  on  authorisation  and 
organisational requirements (direct) 
-  Lower  cross-border  market  entry  costs  in  some 
countries (direct) 
- Use own reputational capital to attract more volumes 
(indirect) 
-  Higher  enforcement  costs 
disclosure  requirements (direct) 
-  Regulatory  uncertainty 
regimes are in place (indirect) 
-  Limited  regulatory  license  effect  to  attract  more 
investors (indirect) 

in  areas  where  national 

implement  new 

to 

Firms 

Competent authorities 

- Small cost reduction for access due to limited 
pass-on of higher revenues for platforms that 
can  benefit  from  a 
investor  base 
(indirect) 
- Greater choice of funding tools (direct) 

larger 

administrative 

Lower 
- 
enforcement 
simplified 
monitoring of operations (direct)  

authorisation 

costs 

and 
to 
and 

due 

-  Higher  compliance  costs  to  implement  new 
disclosure requirements (direct) 

-  Limited  tools  to 
identify  and 
manage  wrongdoing  of  regulated 
entities  leading  to  potential  new 
enforcement costs (indirect)  

40 

 
 
 
 
4.4  A  product-based  approach:  bringing  crowdfunding  within 

the existing EU single rulebook (option 3) 

This  option  brings  crowdfunding  within  the  existing  EU  single  rulebook,  under  different  regimes  for 
investment  and  lending-based  crowdfunding  activities.  Under  NCA's  authorisation,  passport  is 
provided within the perimeter set by the existing legislation (MiFID) for investment-based platforms 
and under a new regime mirroring MiFID passport for lending-based platforms. The regime foresees 
capital requirements to deal with continuity risk for both lending and investment-based, plus MiFID-
like organisational requirements. Some degree of transparency is ensured by the individual regimes, 
in line with current pre-contractual disclosure obligations.    
legislation  to  carve-in  
This  option  would 
proportionate provisions for crowdfunding activity, according to the type of financial product which 
is  the  object  of  the  crowdfunding  services  (e.g.  issuance  of  equity,  granting  of  loans).  The  option 
would  ensure  an  efficient  interplay  between  several  other  EU  legislations  (Prospectus  Directive, 
Payment  Services  Directive,  Investor-Compensation  Schemes  Directive  and  Alternative  Investment 
Fund Managers Directive). Nonetheless, credit intermediation for business purposes (irrespective of 
the natural or legal subjectivity of the borrower), which is currently not regulated at European level, 
would  require  the  creation  of  a  separate  regime,  specifically  crafted  for  this  credit  intermediation 
service. 

imply  amendments  to  existing  financial  services 

4.4.1  Rationale and key characteristics 

The  rationale  of  this  option  is  that  products  provided  on  a  crowdfunding  platform  may  require  a 
targeted  regulatory  response,  according  to  the  nature  of  such  product.  Investment  services,  i.e. 
reception  and  transmission  of  orders  in  transferable  securities  (like  equity  or  debt  securities),  and 
credit intermediation are different in the magnitude of the market failures identified in the problem 
definition,  so  subject  to  two  different  regulatory  regimes.  For  instance,  crowdfunding  investment-
based  instruments  (e.g.  transferable  securities)  would  be  captured  under  the  Markets  in  Financial 
Instruments  (MiFID)  regime  and  subject  to  the  licensing  requirements  for  investment  firms  with 
some proportionate adjustments.  

Investment  services  do  typically  trigger  stronger  fiduciary  duty  (and  also  obligations)  compared  to 
credit intermediation. The assumption behind this different approach is that lending provides access 
to a financial product that has some distinguishing characteristics compared to securities, warranting 
a different set of regulatory requirements, like: 

- 

Less junior claim than most investment-based products in the ranking in case of bankruptcy 
(greater legal protection); and 

-  Clear  payoff structure,  often subject  to  more  systematic issuance over  time,  as  it comes  in 
smaller  amounts  (so  greater  reputational  commitment  by  the  borrower  to  support 
relationship). 

Investment-based  financial  instruments,  mainly  securities  like  shares  or  debt  instruments  would 
instead warrant a different policy intervention because of the following distinguishing features: 

-  More junior ranking in case of bankruptcy (less legal protections); 

-  More complex information than most of the lending products on payoffs structure or returns 

over time; 

41 

 
 
-  Relatively  less  frequent  compared  to  lending,  but  raising  much  higher  capital  (less 

reputational capital involved). 

As a result, the option foresees amendment(s) to current EU legislation to enable the crowdfunding 
platforms to scale under the existing passporting framework, with proportionate rules. By building on 
the existing single rulebook, the regulatory framework can make good use of established solutions to 
governance and operations of the platforms (organisational requirements), as well as disclosure that 
is more tailored to the risk profile of the services provided and its typical investor. The policy option 
would  introduce  amendments  to  existing  legislation  that  currently  touches  upon  the  various 
crowdfunding business models, as identified within the EU28. The goal would be to ensure that the 
requirements  imposed  under  the  respective  legislations  are  proportionate  to  the  level  of  activity 
undertaken by a crowdfunding platform and that certain exemptions are available if necessary. This 
would  also  require 
issuing  clarifications  and  guidance  to  Member  States  with  regards  to 
crowdfunding  activity  in  relation  to  current  EU  legislation  –  ensuring  coherent  definitions  and 
interpretations of platform activities, categorisation and treatment of business models. Furthermore 
this  option  would  require  a  separate  regime  for  lending-based  crowdfunding  activities,  whose 
instruments could not qualify as transferable securities under the MiFID definition. This option would 
provide  platforms  with  more  legal  certainty  and  a  more  proportionate  European  framework  that 
could be followed to expand business their businesses. There would however be a risk of diminishing 
innovation of business models within the sector as all platform operators would have to adhere to a 
common set of rules determined at the European level. 

42 

 
 
Table 6. Key requirements – Option 3 

Authorisation procedure 

Governance & operations 

Information disclosure & conduct 
 Duty  to  act  fairly,  transparently  and  professionally  in  the 

Harmonisation tool 

Investment-
based 
platforms 

CF 

 Passporting 
legislation 
possibility 
investor 
(implemented by NCAs) 

regime  under  existing 
is  NCA's 
(MiFID), 
for 
to  act  unilaterally 
reasons 

protection 

so 

 Adjusted capital requirements  
 Conflict of interest policy 
 Shareholders' vetting 
 Management with high repute, requirements on 
management  qualified  shareholders  with  prior 
notifications/checks 

best interest of clients (fiduciary duty) 

 Evaluation with sound standards  
 Appropriateness test 
 Ongoing disclosure on the project 
 Outsourcing rules 
 Safeguarding assets (if go through the platform) 
 Skills, knowledge and expertise required for the staff and 

the management body 
 Appropriate  and  sound 

resources,  procedures  and 

arrangements for the provision of services/activities 

 Reasonable  steps  to  ensure  continuity  and  regularity  in 

the performance of investment services/activities. 

 Internal  control  mechanisms,  sound  administrative  and 

accounting procedures. 

 Recording obligations 
 Membership of an investor compensation scheme 
 Security  mechanisms  to  guarantee  the  security  and 

authentication 

 Identification of a target market of end clients 

Lending 

CF 
platforms 

 Passporting  regime  under  new  EU 
legislation (implemented by NCAs) 

 Adjusted capital requirements 
 Conflict of interest policy 
 Fit & properness requirements  
 Shareholders' vetting 
 Management with high repute, requirements on 
management  qualified  shareholders  with  prior 
notifications/checks 

 Pre-contractual 

(credit 
characteristics,  interest  rate,  duration  and  number  of 
instalments etc.) 

information 

disclosure 

 Assess borrowers' creditworthiness  
 Limit on individual exposures 

Note: 'CF', 'IB', 'LB' and 'NCAs' stand for 'crowdfunding', 'investment-based', 'lending-based' and 'National Competent Authorities' respectively. 

 Omnibus 

Directive 
(amending legislations) 

 Regulation 

(maximum 

harmonisation) 

43 

 
 
 
 
 
With  regard  to  authorisation  procedures  (within  the  first  problem  driver),  investment-based 
crowdfunding  platforms  would  be  required  to  obtain  an  investment  firm  licence,  considering  the 
services provided, under MiFID (title II, chapter I). For lending-based platforms a new ad-hoc regime 
would be needed under this policy option, also with passport. However, a MiFID licence would imply 
that  a  passport  would  be  available,  but  it  would  not  prevent  Member  States  from  imposing 
additional  requirements  for  investor  protection.  In  practice,  a  MiFID-licensed  platform  would  still 
need to comply with different national investor protection regimes.  

MiFID rules for governance and operations would include an initial capital endowment to protect the 
customers of investment firms or credit intermediation platforms from the risk of insolvency of the 
firm  and  to  ensure  operational  continuity,  their  management (high repute,  qualifications),  rules  on 
qualified  shareholders  with  prior  notifications/checks,  compulsory  participation  in  an  authorised 
investor  compensation  scheme,  etc.46.  Under  legislation  for  investment  services  (MiFID),  the  initial 
capital  requirements  are  EUR  730,000  or,  if  firm  receives  and  transmits  orders  and/or  executes 
orders and/or manages portfolio and holds client money but does not deal on its own account, EUR 
125,000. Member States may lower the initial capital requirement of EUR 125,000 to EUR 50,000 if 
the firm is not authorised to hold client money. In addition, MiFID sets out a number of requirements 
including  requirements  to  make  organisational 
in  relation  to  safeguarding  client  assets, 
arrangements ensuring that client assets can be distinguished from those of the platform in case of 
insolvency.  

Disclosure and conduct requirements would include general disclosure (including disclosure of fees 
and costs) and requirements pertaining to the communications with the client would be applicable, 
as would be an inducements regime. To ensure that investors understand the features and risks of 
the  investments,  the  operators  of  the  platforms  are  subject  to  application  of  suitability  and 
appropriateness tests: such as, to the extent investment advice is provided, the requirements include 
an  appropriateness  test  and  a  Know  Your  Costumer  assessment  of  the  client's  knowledge  and 
experience, person's financial situation, risk tolerance, etc. When the platforms provide services that 
do  not  involve  "investment  advice"  there  is  also  an  appropriateness  test.  Moreover,  there  are 
additional  safeguards  for  the  clients/who  can  invest  including  the  relevant  caps  on  the  amount 
invested. There is a best execution duty where the provider has to take all sufficient steps to achieve 
the best available results,  when deemed executing  orders, in terms of costs,  price, speed, etc. and 
should handle prompt client orders. The Prospectus Regulation requires a document to be approved 
by the national competent authority of the home Member State and published when securities are 
offered to the public or admitted to trading on a regulated market. This requirement only applies to 
transferable  securities  as  defined  in  MiFID.  Therefore,  an  obligation  to  publish  a  prospectus  could 
apply to offerings of securities through crowdfunding platforms.  

4.4.2 

Impacts 

Using  well-established  and  tested  regulatory  frameworks  would  ensure  the  continuation  of  a 
coherent financial system that is tailored for both large and small firms alike. This would also reduce 
the risk of regulatory arbitrage as similar activities would be governed under the same rule book as 
well  as  potential  inconsistencies  in  terms  of  overlapping  legislation.  The  option  would  eliminate 
major regulatory barriers currently preventing cross-border activity by ensuring that Member States 

46 Please, see Directive 2014/65/EU, articles 9, 10, 11, 15. 

44 

 
 
                                                            
have  coherent  definitions,  interpretations  and  thus  honour  passporting  rights  without  imposing 
additional requirements. This option also embeds a more stringent investor protection, which would 
also greatly enhance investor trust towards crowdfunding. Including crowdfunding activities into the 
single financial rule-book would ensure investor protection and provide more clarity as to what the 
level  of  risk  that  is  being  undertaken.  It  would  also  help  ensure  that  these  characteristics  are 
consistent across all platforms within the EU28.  

Crowdfunding is about smaller capital raising activities for new start-ups or small scale up businesses. 
The type of MIFID II/MIFIR obligations (organisational, disclosure, and business conduct rules) might 
be disproportionate. The specific compliance cost increase that would arise from a general obligation 
for investment-based crowdfunding operators to hold an investment firm licence are very difficult to 
estimate. Approximately  40% of investment-based platform operators already hold a MiFID licence 
at this stage47 (either directly or via their parent firm) meaning that no additional costs would arise 
for  these  entities.  For  other  platform  operators  the  costs  will  heavily  depend  on  the  precise 
requirements  that  they  already  fulfil  under  their  current  regulatory  status.  In  most  cases,  they  will 
need to hold additional regulatory capital in order to comply with MiFID. This will be in the range of 
EUR  25,000  –  50,000,  whereby  the  higher  estimate  assumes  that  no  regulatory  capital  is  currently 
held and that the requirement under MiFID will be limited to EUR 50,000 (otherwise EUR 125,000). In 
terms of compliance costs arising from organisational and business conduct rules it is estimated that 
one-off  costs  will  range  from  EUR  25,000  –  50,000  with  recurring  costs  lying  in  the  range  of  EUR 
12,000  –  20,00048.  It  should  be  noted  though  that  these  costs  may  be  significantly  lower  for  some 
nationally  licensed  platforms  that  already  apply  organisational  and  business  conduct  rules  and 
therefore  (almost)  meet  the  respective  MiFID  requirements.  The  cost  impact  on  lending-based 
platforms  is  even  more  difficult  to  estimate.  For  those  lending-based  platforms  licensed  under  a 
national bespoke regime the costs appear to be in a similar range as those discussed above. The costs 
will  depend  on  the  precise  requirements  set  out  in  the  new  ad-hoc  legislation  as  well  as  current 
internal practices and rules of those platforms.  

At the same time, these rules may not be fit for purpose. Crowdfunding encompasses many different 
business  models,  which  might  not  all  be  addressed,  and  could  therefore  have  unpredictable 
regulatory spillover effects. In particular, separate regimes for investment-based and lending-based 
crowdfunding would treat differently the provision of services that are very similar in a crowdfunding 
context (despite the services are applicable to intermediation of different products). As a result, this 
option  may  be  unable  to  capture,  in  a  proportionate  way,  a  growing  number  of  platforms  mixing 
different  business  models,  which  may  involve  lending  and  investment-based  dealings  (so  de  facto 
putting a big constraint on the ability of the industry to keep innovating). Also, as discussed in the 
following section, the provision of a loan with a dispersed lending structure does look like a provision 
of a financial instrument.  

47 ESMA response to the Commission Consultation Document on Capital Markets Union Mid-Term Review 2017 
48 Based on MiFID II Impact Assessment and EC calculations  

45 

 
 
                                                            
Table 7. Key benefits and costs, by stakeholder type – Option 3 

Investors 

Platforms 

Firms 

Benefits 

Costs 

-  Lower  access  costs  in  the  form  of 
greater transparency (direct) 
-  Greater  protection  against  wrongdoing 
(direct) 
- Greater geographical reach allowing for 
more risk diversification (direct) 

funding  products 

-  Less  choice  of 
(indirect) 
-  Risk of  overinvestments  if investors  are 
overprotected on legal risks, but still face 
same market risk (indirect)  

-  Less  regulatory  uncertainty,  which  may 
reduce compliance costs (direct) 
-  Lower  cross-border  market  entry  costs 
(direct) 

-  Medium  cost  reduction  due  to  some 
cross-border level playing field (indirect) 
- Greater choice of funding tools (direct) 

Competent authorities 
-  Lower  administrative  costs  for  those 
member  states  that  would  need  to  roll 
their  bespoke  national  regime  
back 
(direct)  
-  Lower  enforcement  costs,  as  the 
regulatory  regime 
is  streamlined  and 
aligned  with  Single  Rulebook,  as  well  as 
tailored to  (direct) 

-  Lower  ability  for  platforms  to  adapt 
their business models over time (indirect) 
- Greater compliance costs, especially for 
domestic players (direct) 

-  Higher  compliance  costs  to  implement 
new disclosure requirements (direct) 

None 

46 

 
 
 
 
4.5  A  complementary  service-based  solution:  a  regime  for 
(ECSPs; 

'European  Crowdfunding  Services  Providers' 
option 4) 

This option creates a European-wide definition of crowdfunding (combining investment and lending-
based crowdfunding activities under a single regime). Under ESMA's authorisation, this regime allows 
providers  to  passport  the  services  in  this  scope  and  operate  domestically  and  cross-border.  The 
regime  would  co-exist  with  national  ones,  however  the  entity  of  a  crowdfunding  service  provider 
could only hold one license at a time (i.e. either ECSP, either national, either MiFID). This would allow 
platforms  that are not operating  under  'ECSP  label'  to  continue  providing services above the EUR  1 
million  threshold  in  the  domestic  market.  The  comprehensive  passport  regime  is  coupled  with  no 
capital  requirements,  but  MiFID-like  organisational  and  conduct  requirements.  A  tailored 
transparency  regime  for  projects  is  set  out  under  the  Key  Investor  Information  Sheet  (KIIS),  as  for 
option 2. 
This option would entail a stand-alone voluntary European crowdfunding regime under the label of a 
European  Crowdfunding  Services  Provider  (ECSP),  which  platforms  would  choose  when  wishing  to 
conduct  cross-border  business.  This  would  leave  the  tailored  national  crowdfunding  frameworks 
unchanged,  whilst  providing  an  opportunity  for  platforms  that  want  to  scale  their  operations  at  a 
European  level  and  wishing  to  conduct  cross-border  business.  If  a  platform  operator  decides  to 
provide  crowdfunding  services  via  the  ECSP  label,  a  comprehensive  passport  regime  would  be 
granted, so to give access to the full European market. 

It  should  be  noted  that  an  entity  holding  an  ECSP  license  would  not  be  permitted  to  hold  another 
license  with  the  exception  of  a  license  for  the  provision  of  Payment  Services  (as  regards  PSD2).  In 
practical terms this would mean that a platform would have choose between a European license or a 
national license for local activity. ECSP license holders would be permitted to provide the essential 
crowdfunding  services,  that  allow  for  enabling  and  less  burdensome  regulatory  requirements. 
Platforms wishing to provide services outside of those outlined below would have to comply with the 
existing  framework for  financial  service  providers  (i.e.  MiFID,  AIFMD),  thus  ensuring  a  level-playing 
field between all financial service providers.  

4.5.1  Rationale and key characteristics 

The  rationale  of  this  option  is  that  problem  drivers  are  largely  unrelated  with  the  type  of  financial 
product or service that is actually intermediated on these platforms, but it is rather the combination 
of (i) crowdfunding business (services) with dispersed investor base and (ii) products with a financial 
return  that  magnify  the  problems discussed  in  section  1.2.  In  effect, the distinction  between some 
financial  products,  whether  an  unsecured  loan  or  a  debt  security,  is  arguably  limited  in  economic 
terms, when it comes to financing startups or small businesses. As a consequence, the 'crowdfunding 
service',  combining  a  dispersed  ownership  structure  with  a  product  embedding  a  financial  return, 
and not 'the product' itself, would be the object of this policy intervention.  

The ECP regime would determine an authorisation system, whereby platforms would be authorised 
once and be able to passport this authorisation (either through secondary establishment or provision 
of services) across the EU internal market and providing a powerful tool to overcome problem driver 
1.  The  authorisation  would  check  compliance  with  requirements  in  the  area  of  governance, 
operations,  information  disclosure  and  conduct.  This  authorisation  is  without  prejudice  to  the 

47 

 
 
obligation to be authorised for other activities that are outside the scope of this Regulation, such as 
authorisation for the provision of payment services under PSD2 legislation. The authorisation body 
would be ESMA, whether the instruments traded are respectively transferable securities or loan-type 
agreements because the scope captures the provision of investment services in any type of financial 
product,  in  line  with  the  objective  to  promote  sufficient  supervisory  convergence  in  the  CMU.  For 
instance,  the  scope  does  not  capture  platforms  directly  providing  loans  to  private  entities  or 
individuals  through  pooling  of  investors'  assets.  ESMA  would  also  maintain  a  public  register  with 
authorised platforms and the services they are authorised to perform in the EU.  

Table 8. Key requirements – Option 4 

Authorisation 
procedure 

 Comprehensi

ve 
passporting 
regime  under 
ESMA 
authorisation 

Governance & operations 

Information disclosure & conduct 

Harmonisation 
tool 

 Conflict of interest rules 
 No capital requirements 
 Communication  channel  between 

investor & fund seeker 

 Rules  on  protection  of  personal 
data (if not captured by GDPR)49 
 Fit and properness requirements 
 Light record keeping 
 KYC  due  diligence  (investors  and 

fundraisers) 

 Key investment information sheet (KIIS) 
 Ongoing information disclosure 
 Rule  on  the  functioning  of  the  platform  & 

rules on due diligence process 

 Regulation 

 Disclosure of measures to manage risks 
 Disclosure  of  aggregate  information  about 

activities on the platform 

Rules dealing with governance and operations of crowdfunding platforms include requirements like 
conflict  of  interest  policies.  This  policy  would  ensure  that  platforms  identify  and  manage  potential 
conflicts of interest, ensuring that any conflict is disclosed to the platform's clients.  This option does 
not foresee capital requirements, as the platform operates services that do not warrant prudential 
treatment for minimal operational and continuity risk. This is also in line with the objective to create 
a  regime  that  enables  cross-border  business  activity,  which  would  make  this  requirement  fairly 
disproportionate considering the operational risk undertaken and risk of disruption in the market. 

For  what  concerns  conduct  and  information  disclosure  to  address  problem  driver  1  and  2,  a  key 
feature  of  the  regime  is  the  Key  Investment  Information  Sheet  (KIIS),  which  offers  a  standardised 
template with the minimum information necessary about risk and characteristic of the instruments 
sold  to  investors  (whether  a  share  or  a  loan  agreement,  the  document  will  adapt  its  content 
accordingly). This document could be issued without pre-approval, but only with ex post monitoring 
by  the  competent  authority  about  its  key  characteristics  and  request  to  adjust  (if  necessary). 
Potential  alternatives  could  be  either  to  leave  disclosure  to  voluntary  action  (current  baseline  in 
many member states) or to go deeper into the application of the prospectus regulation. The former 
does  not  provide  any  minimum  guarantee  that  the  information  to  investors  will  be  sufficient  to 
understand the risk of their investments, so not addressing the enhanced information asymmetry of 
the second problem driver. The latter, instead, is more invasive and would not meet the attempt of 
this regime to be proportionate. The regime would foresee the obligation on platforms to apply KYC 
rules both for investors and fundraisers. This is also in line with the requirements foreseen with AML 
and CCD. 

The ECP regime leaves crowdfunding platforms, intermediating projects above EUR 1 million over 12 
months, with the need to apply for a licence to provide the abovementioned services or additional 

49 General Data Protection Regulation (GDPR), Regulation (EU) 2016/679. 

48 

 
 
                                                            
ones at national level (with no passport). The attractiveness of the national regime, whether an ad 
hoc regime or based on existing EU legislation (MiFID), would be preserved for market projects that 
are  above  EUR  1  million  consideration  and  below  EUR  8  million  (so  outside  the  ECP  regime),  in 
alignment with conditions set by the Prospectus regime. 50 As a result, the ECP regime would well co-
exist  with  national  ones,  since  the  latter  would  still  have  value  in  providing  the  framework  for 
issuances up to EUR 8 million.  

4.5.2 

Impacts 

This  policy  option  would  determine  a  rather  swift  and  sizeable  reduction  of  market  entry  costs 
(regulatory  and  supervisory  costs)  for  crowdfunding  platforms  operating  (or  intending  to  operate) 
cross-border,  since  they  would  only  be  authorised  once  and  the  regime  is  lighter  and  more 
proportionate than extending the MiFID one. The proposed regime would also allow for flexibility in 
capturing platform activities combining multiple business models, as it provides a single regime that 
applies to  both investment-based and lending-based models  (reducing regulatory uncertainty). The 
foreseen safeguards for investors may also produce a moderate regulatory license effect that would 
attract more investors. National competent authorities would also be affected by a lower amount of 
directly  authorised  entities  at  national  level.  Firms  may  benefit  from  greater  cross-border 
competition  among  ECPs  that  would  potentially  emerge.  Investors  would  also  benefit  from  lower 
market  access  costs  in  the  form  of  greater  transparency,  lower  monitoring  costs  and  greater 
geographical  reach  in  diversification.  Businesses,  in  addition,  would  be  able  to  access  a  cheaper 
funding tool than traditional unsecured bank funding. 

The  EU  regime  would  co-exist  with  current  national  regimes  for  projects  up  to  the  EUR  1  million 
threshold.  The  national  regimes  would  retain  their  exclusive  relevance  above  the  EUR  1  million 
threshold or for platforms that provide additional services not captured by the EU regime. 

Domestic platforms may also face some additional compliance if they are operating in a country with 
no  or  light  bespoke  regime  (very  limited  number  and  mostly  small  member  states).  Firms  that  are 
raising funds on ECP platforms would most likely encounter a reduction in costs for the service and 
easiness of access to alternative funding tools to expensive short-term bank finance. However, they 
would  also  have  to  face  some  costs  for  the  preparation  and  publication  of  the  Key  Investor 
Information Sheet, which stands around EUR 3 000 (plus EUR 1 600 to ensure regular updates). 

50 Regulation (EU) 2017/112. 

49 

 
 
 
                                                            
Table 9. Key benefits and costs, by stakeholder type – Option 4 (see quantification in Annex 3) 

Benefits 

Investors 
-  Lower  access  costs  in  the  form  of 
greater transparency (direct) 
-  Moderate 
wrongdoing (direct) 
- Greater geographical reach allowing for 
more risk diversification (direct) 

protection 

against 

Platforms 
-  Less  regulatory  uncertainty,  which  may 
also reduce compliance costs (direct) 
-  Significantly  lower  cross-border  market 
entry costs (direct) 
 -  Greater  ability  for  platforms  to  adapt 
their business models over time (indirect) 

Firms 
-  High  cost  reduction  due  to  some  cross-
border  competition  putting  pressures  on 
margins  or  due  to  increase  in  volumes 
passed on clients (direct) 
-  Greater  choice  of  funding  tools  and 
lower funding costs (direct) 

Costs 

None 

- Greater compliance costs, especially for 
domestic players (direct) 

-  Higher  compliance  costs  to  implement 
new disclosure requirements (direct) 

Lower 

Competent authorities 
administrative  burdens 
- 
because  of  the  reduction  in  directly 
authorised entities  (direct)  
-  Lower  enforcement  costs,  as  the 
regulatory  regime  is  streamlined  and 
aligned with Single Rulebook (direct) 
- One-off and recurrent costs on ESMA 
to  set  up  authorisation  capability 
(direct) 
-  Regulatory  uncertainty  in  the  ability 
to  co-exist  with  national  regimes 
(indirect)  

50 

 
 
 
5  Comparing the policy options  
This section reviews the three options and assesses them against the benchmark of effectiveness and 
efficiency  (cost  effectiveness), compared  with  the  baseline.  Policy options  are  assessed  against the 
baseline, unless stated otherwise. 

Table 10. Key characteristics of the policy options 

Governance 
Operations 

& 

Conduct & Transparency 

Legal tool 

Best practices 

KIIS 

Regulation (KIIS) 

Option 2 

Option 3 

Authorisation 

Notification only 
No passport 
NCA supervision 
IB 
if 
=  Passport, 
foreseen  by  existing 
legislation  
LB  =  New  EU  passport 
regime 
NCA supervision 

Capital requirements 
Conflicts  of 
policies 

interest 

Option 4 

Comprehensive 
passport regime 
ESMA supervision 

No capital requirements 
Conflicts  of 
interest 
policies 

conduct 

NO KIIS 
General fiduciary duty 
Ongoing disclosure 
Strong 
obligations 
Safeguarding rules 
KIIS 
No general fiduciary duty 
Ongoing disclosure 
No 
major 
obligations 
No safeguarding rules 

conduct 

IB  =  Amendments 
to MiFID II 
LB = Regulation 

Regulation  
(single regime) 

Note:  'CF',  'IB','LB'  and  'NCAs'  stand  for  'crowdfunding',  'investment-based',  'lending-based'  and 
'National Competent Authorities'. 

The evolution of the baseline, under current market and policy dynamics, would see a worsening of 
the problems identified in previous chapters. Crowdfunding platforms will be even less able to scale-
up  cross-border  and  the  increasing  conflicts  between  national  regimes  may  create  loopholes  for 
investor protection (via disclosure requirements) and the integrity of the market.  

Option  2  would  ensure  flexibility  and  adaptation  to  new  business  models,  but  it  would  create 
uncertainty surrounding the self-regulatory enforcement mechanism and its interaction with national 
regimes already in place. It would not provide a passport. As a result, the option would be relatively 
effective in achieving objective 1 and 2b (see   

Table  11  for  full  comparison),  but  with  the  problem  of  the  regulatory  uncertainty  for  platforms 
moving  cross-border  and  for  investors,  with  negative  spillover  on  the  overall  investor  protection 
framework.  The  transparency  issue  concerns  with  the  reliance  on  reputational  capital  for  what 
concerns conduct and organisational requirements that allow to know how the platform is governed 
and operated, whereas disclosure of the marketed instrument/project would be aligned to the other 
two options (at highest level). The option would have a neutral impact on its effectiveness towards 
objective 2a, as it will be left to self-regulation (negative impact) and in some countries to national 
regimes  (positive  impact).  The  option  would  be  also  cost  effective  in  achieving  the  objectives, 
because it would reduce costs compared to the baseline, but at the same time improve the score on 
reaching objectives 1 and 2b. 

51 

 
 
 
Option  3  carves-in  the  crowdfunding  regime  in  the  Single  Rulebook.  Therefore,  it  strengthens  the 
enforcement  and  investor  protection  framework,  at  the  expense  of  flexibility  for  platforms  and 
choice  and  lower  funding  costs  for  firms.  As  a  consequence,  option  3  performs  best  with 
strengthening integrity, due to strict governance and organisational requirements, as well as greater 
enforcement  tools.  The  option  performs  well  also  in  terms  of  transparency,  but  not  at  the  highest 
level  due  to  the  application  of  the  ongoing  disclosure  requirements  foreseen  under  the  existing 
Single  Rulebook  (based  on  the  fiduciary  duty  relationship  that  would  require  the  intermediary  to 
provide  some  degree  of  ongoing  disclosure  about  the  project),  rather  than  the  tailored  template 
(KIIS)  under  harmonised  regimes  for  option  2  and  4.  The  option  would  be  also  more  effective  in 
enabling cross-border scale-up, because it provides for some reduction in market entry cost but with 
the caveat of the gold plating possibility, which constraints the possibility to be even more enabling. 
The efficiency of the option in achieving this objective is at best neutral, as the gold plating and the 
different approach to investment and lending-based platforms are achieving, in the same way than 
option 2, two out of three objectives, but at much higher cost. 

Option  4  creates  a  voluntary  EU  label  for  crowdfunding  provider  that  combines  flexibility  (firms 
choose if they want to apply for it) with proportionate investor protection and organisational rules. 
Platforms intending to operate cross-border may apply for the label due to significant cost reductions 
(see Annex 3). This option thus performs best in terms of effectiveness for two out of three specific 
objectives. For objective 1, it provides a common regime for investment and lending-based platforms 
(which provides flexibility to adapt business models), as well as a comprehensive passporting regime 
(which  may  enable  active  selling).  The  combined  effect  of  the  two  would  boost  cross-border 
expansion  and  perhaps  consolidation  too.  For  objective  2a,  the  option  builds  similar  safeguards 
tailored for crowdfunding platforms, but not as far as option 3 goes. For objective 2b, it offers the 
same level of high-quality tailored transparency that option 2 provides (KIIS), but it also offers a more 
harmonised  enforcement  mechanism  under  a  single  authority  and  common  rules  providing 
transparency on the operations and governance of the platform (like option 3). In terms of efficiency, 
option  4  is  very  cost  effective  because  it  achieves  more  than  option  3  (the  second  best)  with 
significantly lower costs for investment-based platforms.51 Furthermore it preserves the existence of 
a  variety  of  business  models  and  potential  for  innovation  that  currently  exists  under  the  tailored 
national  regimes.  In  addition,  it  enables  more  cross-border  scale-up,  as  it  reduces  regulatory 
uncertainty  giving  clear  allocation  of  task  on  supervision,  which  at  the  same  time  lowers 
administrative costs for competent authorities.  

Table 11. Benchmarking policy options 

Objectives 

EFFECTIVENESS 

Enabling 
cross-
border scale-up 

Strengthening 
platforms' integrity 

Promoting 
transparency  for 
investors 

EFFICIENCY 

(cost-
effectiveness) 

Policy option  

(objective 1) 

(objective 2a) 

(objective 2b) 

51  For  lending-based  platforms,  the  costs  would  be  similar  as  a  new  regime  would  need  to  be  created  for 
crowdfunding service in these products. 

52 

 
 
                                                            
Option 
No policy change 

1:  

0 

Option 2  Building 
reputational 
on 
capital 

Option  3  Existing 
Single Rulebook 

Option 4 

ECP regime 

≈ 

+ 

++ 

0 

≈ 

++ 

+ 

0 

+ 

+ 

++ 

0 

+ 

≈ 

+ 

As result of the above benchmarking, option 4 is preferred over the other options. It is more effective 
than  option  3,  as  a  greater  enabler  of  cross-border  scale-up  and  transparency  for  investors,  and 
option  2  in  all  respects,  as  it  provides  a  powerful  passporting  regime,  a  tailored  transparency  of 
projects  and  platform  processes  and  greater 
integrity  with  more  effective  organisational 
requirements. Option 4 is also more efficient than option 3, but as cost effective as option 2 (which 
imposes very minimal costs to improve the transparency framework against the baseline). Option 4 
would  be  also  coherent  with  the  legislative  framework,  as  it  allows  coexistence  of  established 
financial frameworks (like MiFID) with this regime, with a carve out in line with the parameter of EUR 
1  million  set  in  another  key  piece  of  legislation  (Prospectus  Regulation).  The  framework  set  out  in 
option would minimise risks of regulatory arbitrage, while being enabler of cross-border activities in 
line with a solid investor protection and financial stability framework. 

Finally, the design of Option 4 is also more future-proof as it integrates both investment-based and 
lending-based  models  within  one  regulatory  framework.  This  provides  flexibility  for  platforms 
wishing to operate hybrid models as well as allows the possibility to offer more innovative products, 
not limited to equity or loans. In light of recent developments within the area of Initial Coin Offerings 
that are still currently, this may ensure the possibility to include such innovations within the scope of 
the  regime  at  some  point  in  the  future  if  deemed  necessary.  Focusing  on  service  provision  whilst 
accordingly  adapting  the  Key  Investment  Information  Sheet  would  provide  a  forward  looking 
approach towards the rapidly changing market. 

53 

 
 
6  Overall impact of the preferred option 
This section reviews the overall impact of the preferred option of establishing a regime for European 
Crowdfunding Providers (ECPs). As discussed in section 4.2, the EU regime would be based on three 
pillars: 

1.  Authorisation with comprehensive passporting regime; 

2.  Governance and organisational rules; and 

3.  Conduct and disclosure rules, including the 'Key Investor Information Sheet'. 

The  European  passport  for  platform  operators  would  allow  them  to  pursue  their  core  activities 
across Member States and seamlessly intermediate projects throughout the EU. It thereby addresses 
the issues of prohibitive regulatory costs currently witnessed by platform operators when attempting 
to  enter  certain  EU  markets,  particularly  those  markets  whereby  a  national  bespoke  regime  for 
crowdfunding  is  applicable.  The  costs  of  non-Europe  in  crowdfunding  services  can  be  estimated  at 
around EUR 20 to 25 billion in terms of market activity that markets can potentially generate in the 
medium term (see Annex 3 for more details).  

interaction  with 

investment-based 
Notably,  this  regime  would  reduce  complexity  and  the 
crowdfunding  under  MiFID,  by  introducing  a  common  definition  of  crowdfunding,  and  establishing 
common  rules  in  terms  of  how  platforms  should  handle  the  intermediation  of  security  and  non-
security-based products (including loans). As a result, also lending-based platforms will fall under this 
regime.    The  new  ECP  regime  will  significantly  lower  the  barriers  to  cross-border  market  entry  for 
platform  operators,  investors  and  project  owners  alike.  Operators  would  then  channel  EU 
investments  and  projects  through  few  pan-European  platforms,  regardless  of  the  geographical 
location  of  the  users.  On  the  one  hand,  this  will  increase  the  competitive  pressure  on  platform 
operators  with  beneficial  effects  for  both  investors  and  fund  seekers  in  terms  of  price,  choice  and 
innovation.  The  heightened  competitive  pressure  will  facilitate  a  more  rapid  consolidation  of  the 
sector  and  may  lead  less  competitive  platforms  that  are  currently  protected  from  cross-border 
competition to leave the market. On the other hand, the competitive platform operators that remain 
in  the  market  will  benefit  in  terms  of  increased  network  effects,  which  thus  make  their  respective 
platform  more  attractive  to  potential  users.    Ultimately,  this  would  generate  benefits  for  small 
businesses in terms of greater access to early stage financing and flexible funding tools. 

At the same time, the ECP regime avoids imposing certain obligations that arise from a general MiFID 
license  in order to  make  the regime  more  proportionate  given  the  types  of  core  activities  of  ECPs. 
This includes omitting minimum capital requirements, lowering organisational requirements (e.g. no 
requirements placed on shareholders and members with qualifying holdings) and limiting business 
conduct  requirements  to  those  appropriate  for  operating  a  primary  market  like  a  crowdfunding 
platform  (e.g.  no  best  execution  requirement  and  reporting,  no  circuit  breakers  etc.).  In  effect, 
crowdfunding platform operators that choose to apply for the ECP label will face lower compliance 
costs, not only in comparison to MiFID but also to some of the more stringent national regimes. For 
currently MiFID regulated firms, the ECP regime implies total potential cost savings of approximately 
EUR 4 – 7.75 million in terms of one-off costs52 and EUR 27,500 – 60,500 in terms of recurring costs 
per  year.  The  estimated  one-off  costs  savings  for  platform  operators  regulated  outside  of  MiFID 

52 Including capital requirements under MiFID  

54 

 
 
                                                            
(including  bespoke  regimes)  lie  in  the  range  of  EUR  15  –  29  million  with  recurring  cost  savings  of 
195,000 – 240,000 per year53.  

 ECPs already holding a MiFID licence are likely to face certain additional costs, if they choose the EU 
label but they decide not to go cross-border. If the commercial activities of an operator are covered 
by  the  ECP,  a  MiFID  licenced  firm  may  be  granted  a  passport  with  negligible  costs  related  to  the 
initially  notification  to  the  NCA  and  ESMA  of  the  decision  to  ask  for  the  label.  Operators  that  also 
engage in activities that continue to require a MiFID licence, however, may be required to establish a 
second legal entity in order to take advantage of the ECP. The ECP will only cover the core activities 
of  operators  meaning  that  other  ancillary  services  cannot  be  provided,  unless  the  entity  holds  a 
respective  licence. This  will normally  be a  MiFID  licence  in the area  of  investment-based  platforms 
(AIFM licence is also possible depending on the business model) and a PSD2 licence for lending based 
platforms, needed for the provision of payment services.  

The  ECP  regime  will  also  benefit  investors  by  establishing  a  common  disclosure  mechanism 
concerning  the  characteristics  of  respective  investments  and  associated  risks.  A  standardised 
template  in  form  of  the  KIIS  will  enable  investors  to  directly  compare  potential  pay-offs  and  risks 
associated  with  projects  across  platforms  and  Member  States.  This  will  allow  for  better  informed 
investment decisions and, in effect, increase the overall efficiency of capital allocation through CFPs. 
At  the  same  time,  the  highly  tailored  nature  of  the  KIIS  transparency  regime  avoids  placing 
unnecessary high costs on fund seekers and platforms, as it would be the case under more stringent 
requirements  than  those  imposed  by  the  KIID.  Moreover,  the  ECP  transparency  requirements  in 
terms  of  operations  and  governance  of  platforms  will  facilitate  investors  and  fund  seekers  to 
compare  ECP  market  offerings  more  accurately.  This  should  give  rise  to  increased  competitive 
pressure in the market, thereby benefitting both user groups.  

Increased cross-border competition between platforms will work to the advantage of fund seekers in 
particular, as they carry the majority of the costs associated with the funding process. The option will 
thereby help to reduce the funding costs for businesses, including SME's and micro companies who 
are  the  dominant  users  of  ECPs.  These  fund  seekers  will  benefit  furthermore  from  the  wider 
geographical  reach  of  platforms,  as  offerings  are  made  available  to  a  larger  group  of  potential 
investors.  This  may  increase  the  level  of  funding  achieved  on  the  one  hand,  while  simultaneously 
decreasing the time needed to reach the envisioned funding sum(s). ECPs will thereby be even more 
effective in helping to bridge the funding gap of SME's and micro companies, often experienced at an 
early stage of development.  

The preferred option also holds implications in terms of costs and administrative burden on ESMA, 
which will be potentially reflected on the EU budget. In order to authorise ECPs, it is estimated that 
there will be a one-off costs of approximately EUR 500,000 in order to setup respective IT systems 
and arrange for a team to take charge of the authorisation process54.  

Given that the regime will only cover a limited breadth of commercial activities, however, the cost 
implications  for  ESMA  will  be  lower  than  those  arising  from  a  respective  MiFID  authorisation  with 
NCAs at national level. Bespoke regimes that also cover advisory activities will similarly imply higher 

53 See Annex 3 for breakdown of costs and assumptions made in the calculations 
54 Estimate based on cost estimation from ESMA and European Commission calculations 

55 

 
 
                                                            
costs  for  NCAs.  While  it  is  difficult  to  provide  concrete  estimates  as  to  the  costs  level,  it  can  be 
assumed  that  the  supervisory  costs  will  be  comparable  to  those  associated  with  national  regimes 
that  only  cover  the  activity  of  'order  transmission'.  On  this  basis,  and  based  on  cost  estimation 
provided by ESMA, it is expected that the authority will face total costs of approximately EUR 2 320 
000  –  2  840  000  annually.  These  costs  mainly  arise  from  additional  staffing  needed  to  ensure  an 
effective supervisory system, examination of KIIS's, and translation of documents. Meanwhile, ECPs 
falling under the supervision of ESMA will be required to pay an annual fee in order to offset a part of 
these  costs.  These  fees  will  be  capped  at  0.5%  of  annual  revenues  of  respective  ECPs,  in  order  to 
assure that fixed fees do not hinder smaller platforms from opting into the new regime.  

The initiative may furthermore give rise to positive social externalities. Given that the ECP regime will 
impose  common  transparency  and  conflict  of  interest  obligations  on  platform  operators,  investors 
will  be  better  protected  against  fraudulent  activities  and  misselling.  Likewise,  mandatory  risk 
warnings  will  help  to  avoid  that  investors  take  on  risks  that  are  inappropriate  for  a  respective 
investor's  risk  aversion  and  will  facilitate  greater  diversification  of  investments.  There  may  also  be 
beneficial (indirect) effects  in  terms of  job creation  and  innovation.  SMEs  currently employ  67%  of 
the  European  workforce55  and  are  a  significant  driver  of  innovation.  At  the  same  time,  SME's 
continue to experience significant problems to raise funds (i.e. lack the ability to expand and invest in 
R&D  to  the  extent  they  would  ideally  want  to).  The  2016  ECB  SAFE  study  shows  that  this  is  a 
particularly pressing problem in Greece, Ireland, Italy and Portugal. In addition, the 2016 European 
Commission's  Innobarometer  survey  confirms  that  access  to  funding  is  a  key  obstacle  for  spurring 
R&D and the commercialisation of innovative products or services.  

Beyond this, there is a limited impact expected to arise from the initiative on third countries. After 
the departure of the United Kingdom from the European Union, it may be necessary to ensure that 
crowdfunding service provision is not abruptly interrupted, perhaps via third country rules.  

No relevant environmental impacts are expected. There may however be beneficial indirect impacts, 
for example, where crowdfunding platforms help to fund environmental projects or new innovative 
green technologies. A more competitive European market will help to reduce the funding costs for 
such projects, as well as facilitate increased funding levels and reduced time-to-fund.    

55 Source: Eurostat  

56 

 
 
 
 
 
                                                            
7  Monitoring and evaluation 
Given  the  pace  at  which  the  crowdfunding  market  evolves,  providing  for  a  robust  monitoring  and 
evaluation mechanism is very important. The  monitoring and  evaluation mechanism should ensure 
that the envisaged network effects are realised while maintaining the necessary safeguard regarding 
consumer protection. 

The  Commission  could  establish  a  detailed  programme  for  monitoring  the  outputs,  results  and 
impacts  of  this  initiative.  The  monitoring  programme  shall  set  out  the  means  by  which  and  the 
intervals at which the data and other necessary evidence will be collected. It shall specify the action 
to be taken by the Commission, by the Member States and by the ESAs in collecting and analysing 
the data and other evidence. 

The Commission services would monitor the effects of the retained policy option on the basis of the 
following non-exhaustive list of indicators: 

1. 

Impacts on the platforms:  

a.  Number of countries where platforms opt-in 
b.  Yearly volume of crowdfunding in EU countries 
c.  Investor base by type of investors 
d.  Number and volume of projects funded cross border 
e.  Cross border investments 
f. 
2.  Direct Costs 

Inward and outward investment from third countries 

a.  Licensing fees 
b.  Supervisory and regulatory fees 
c.  Enforcement costs 

3. 

Indirect costs/benefits 

a.  Evolution of fees paid to finance projects / to invest 
b.  Evolution of average ticket size  

Concerning the first set of indicators, while the Commission will be in charge of monitoring the take 
up  of  the  legislation  according  to  EU  law,  the  other  indicators  from  1.b  to  1.f  are  to  be  collected 
through  the  help  of  the  Member  States,  the  ESAs  and  market  associations  such  as  the  ECN. 
Concerning the second set of indicators, the involvement of supervisors is necessary. Surveys among 
Member States' competent authorities will be used for this purpose. However, indicator 2.b will likely 
need  the  involvement  of  stakeholders.  Finally,  concerning  the  last  set  of  indicators,  the  ESAs, 
supervisors  and  market  associations,  such  as  the  ECN,  would  be  best  placed  to  monitor  the 
development of these factors.  

57 

 
 
Annex 1: Procedural information 

1.  Lead DG, Decide Planning/CWP references 

Lead Directorate-General: Directorate-General for Financial Stability, Financial Services and Capital Markets 
Union (FISMA). 

The 
is 
initiative 
PLAN/2017/1676.  

included 

in  the  Commission  Work  Programme  2018  as  agenda  planning 

item 

2.  Organisation and timing 

Organisation and timing of Inter Service Steering Group’s meetings: three meetings on 9 March, 6 October 
and  10  November  2017.  The  Inter  Service  Steering  Group  included  representatives  of  the  Economic  and 
Financial  Affairs  (ECFIN),  Competition  (COMP),  Internal  Market,  Industry,  Entrepreneurship  and  SMEs 
(GROW), Justice and Consumers (JUST), the European Political Strategy Center (EPSC), the Legal Service (LS) 
and the Secretariat General (SG). 

3.  Consultation of the RSB 

The  Regulatory  Scrutiny  Board  (RSB)  has  delivered  its  opinion  on  a  draft  of  the  Impact  Assessment  on  15 
December 2017. 

4.  Evidence, sources and quality 

The  impact  assessment  draws  on  an  extensive  amount  of  desk  research,  external  studies,  targeted 
consultations,  interviews,  focus  groups,  workshops  and  other.  The  material  used  had  been  gathered  since 
the Commission Services started monitoring the market in 2013. This includes meetings with stakeholders, 
studies  carried  out  on  behalf  of  the  Commission  and  by  industry  stakeholders,  staff  working  documents, 
opinions  and  advice  by  the  supervising  authorities,  as  well  as  other  studies,  including  academic  research 
papers. These include, but are not limited to the following: 

  Three regulatory workshops with Member States were held in December 2014, February 2016 and in 
November  2017,  in  the  framework  of  the  Expert  Group  of  the  European  Securities  Committee 
(EGESC)56; 

  Four meetings of the European Crowdfunding Stakeholder Forum (ECSF), of which the most recent 

was held on 17 February 201657; 

56 Minutes of the meetings are available at: http://ec.europa.eu/finance/securities/egesc/index_en.htm.  
57  Agendas,  minutes  and  meeting  documents  are  available  at:  http://ec.europa.eu/finance/general-
policy/crowdfunding/index_en.htm#maincontentSec6.  

58 

 
 
 
 
 
 
 
                                                            
  A  study  crowdfunding  markets  in  the  EU  (both  platforms  and  projects)  in  the  period  2013-14  and 
analysing  selected  national  legislative  interventions  on  crowdfunding,  including  market  trends 
before and after those interventions (published in November 2015)58; 

 

In  April  2016  the  Financial  Services  Users  Group  (FSUG)  published  a  study  (prepared  by  Oxera) 
assessing (i) the level of awareness among the general population of potential (and actual) users of 
crowdfunding  as  a  form  of  seeking  a  financial  return;  and  (ii)  among  those  who  are  aware  of 
crowdfunding, the level of awareness of the associated risks59; 

  A  study  on "Crowdfunding innovative  ventures  in  Europe  -  The financial  ecosystem and  regulatory 
landscape",  published  in  February  2015.  The  study  identified  the  main  crowdfunding  models,  the 
market  development  and  trends,  the  positioning  in  financing  market,  the  potential  for  innovation, 
the success factors for campaigns, a regulatory state of play in Europe and in some third countries, 
and  the  perspectives  for  an  evolving  regulatory  landscape.  The  study  provides  initial  concepts  for 
self-  or  co-regulation  in  the  sector  in  order  to  spur  the  development  of  the  industry,  whilst 
enhancing consumer protection and transparency60; 

  A report by the Joint Research Centre of the Commission on "Understanding crowdfunding and its 

regulations", published in 201561; 

  A  study  on  "  Assessing  the  potential  for  crowdfunding  and  other  forms  of  alternative  finance  to 
support research and innovation", which is expected to deliver a more comprehensive picture of the 
potential  for  crowdfunding  investors  to  improve  access  to  risk  finance  in  the  EU  for,  in  particular, 
SMEs and small mid-caps.  

  A project that aims at identifying, analysing and publicising best practice in Europe's crowdfunding 

market in relation to the cultural and creative sectors.  

  A Commission Guide on Crowdfunding for SMEs in 23 languages62. 

  The advice and an opinion on investment-based crowdfunding published by the European Securities 

and Markets Authority (ESMA) in December 201463; 

  The  opinion  on  lending-based  crowdfunding  published  by  the  European  Banking  Authority  in 

February 201564. 

  The reports of the Cambridge Centre for Alternative Finance, Judge Business School65. 

  Study  commissioned  by  DG  FISMA  on  identifying  market  and  regulatory  obstacles  to  cross-border 

development of crowdfunding in the EU66.  

at 

an 

at: 

from 

Available 

"Crowdfunding 

investor  perspective".  Available 

http://ec.europa.eu/finance/general-

https://ec.europa.eu/digital-single-market/en/news/crowdfunding-innovative-ventures-europe-

58  "Crowdfunding:  Mapping  EU  markets  and  events  study".  Available  at:  http://ec.europa.eu/finance/general-
policy/crowdfunding/index_en.htm#maincontentSec1.     
59 
policy/docs/crowdfunding/160428-crowdfunding-study_en.pdfhttp://ec.europa.eu/finance/general-
policy/docs/crowdfunding/160428-crowdfunding-study_en.pdf.     
60 
financial-ecosystem-and-regulatory-landscape-smart.  
61 Available at http://publications.jrc.ec.europa.eu/repository/bitstream/JRC92482/lbna26992enn.pdf.  
62 
policies/crowdfunding/index_en.htm.   
63 ESMA's Opinion and Advice are available at: https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-
1378_opinion_on_investment-based_crowdfunding.pdf 
and 
https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1560_advice_on_investment-
based_crowdfunding.pdf, respectively.  
64 
available 
03+(EBA+Opinion+on+lending+based+Crowdfunding).pdf.      
65 The reports are available at: https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/ 

https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-

http://ec.europa.eu/growth/access-to-finance/funding-

EBA's  Opinion 

Available 

website: 

Europa 

the 

on 

at 

is 

59 

 
                                                            
The material used to inform this impact assessment comes from reputable and well-recognised sources that 
act  as  benchmarks  and  reference  points  for  the  crowdfunding  industry.  Findings  were  cross-checked  with 
results in other publications in order to ensure biases caused by outliers in the data or vested interests by 
the author.  

66  Once  publication  arrangements  are  finalised,  the  study  will  be  published  on  the  Commissions'  webpage: 
https://ec.europa.eu/info/business-economy-euro/growth-and-investment/financing-investment/crowdfunding_en 

60 

 
 
 
                                                                                                                                                                                                        
Annex 2: Stakeholder consultation – Synopsis Report 

1.  European Commission's public consultations 

Over  the  last  four  years,  the  evolution  of  crowdfunding  and  peer-to-peer  lending  in  the  EU  has  been 
thoroughly monitored by the Commission services. Crowdfunding and peer-to-peer markets have been the 
object  of  four  public  consultations  as  well  as  of  external  studies.  Furthermore,  the  Commission  Services 
engaged  in  regular  dialogues  with  European  Supervisory  Authorities,  Member  States  and  operators  of  the 
crowdfunding  and  peer-to-peer  sectors,  such  as  crowd-platform  providers  as  well  as  organisations 
representing crowdfunding and peer-to-peer lending market operators. 

1.1. 

2017 FinTech consultation 

In  2017,  stakeholders  were  consulted  through  a  public  consultation67  on  'Fintech:  a  more  competitive  and 
innovative European financial sector'. The consultation remained open for 13 weeks and received feedback 
from  226  respondents  covering  individuals,  industry  (from  a  variety  of  market  participants),  national  and 
European regulators and supervisors, users and trade unions. A summary of the contributions together with 
a  detailed  summary  of  individual  responses  to  the  public  consultation  were  published  as  a  feedback 
statement by the Commission services on 12 September 201768.  

Respondents by country 

Respodent by category 

28% 

3% 
5% 

20% 

18% 

5% 

4% 

8% 

10% 

BE

ES

UK

NL

FR

FIN

DE

IT

Others

12% 

7% 

81% 

Companies

Individuals

Public institutions or international
organisations

The consultation raised the following three questions on crowd and peer-to-peer finance- related activities, 
which aimed at assessing if stakeholders' perceptions on the potential impact of crowdfunding and peer-to-
peer lending on consumer protection, collection and use of personal data and financial stability have evolved 
over time: 

67 European Commission, Public consultation on 'Fintech: a more competitive and innovative European financial sector', 
available here 
68 European Commission, 'Summary of the contributions to the Public Consultation on Fintech: a more competitive and 
innovative European financial sector', published on 12 September 2017, available here 

61 

 
 
 
 
                                                            
  Text of question 1.6 – Are national regulatory regimes for crowdfunding in Europe impacting on the 
development of crowdfunding? In what way? What are the critical components of those regimes? 

  Text of question 1.7 – How can the Commission support further development of Fintech solutions in 
the  field  of  non-bank  financing,  i.e.  peer-to-peer  marketplace  lending,  crowdfunding,  invoice  and 
supply chain finance? 

  Text of question 1.8 – What minimum level of transparency should be imposed on fund-raisers and 
platforms? Are self-regulatory initiatives (as promoted by some industry associations and individual 
platforms) sufficient? 

In  addition,  two  general  questions  were  inquiring  about  existing  regulatory  barriers  and  licensing  needs 
more globally (questions 3.369 and 3.470).  

In  total,  724  responses  to  these  questions  were  received,  with  an  average  of  145  responses  to  each 
question.  The geographical  distribution  of  the  responses  as  well as  the variety  of  responding stakeholders 
provided the Commission services with a comprehensive overview of the status of the crowd and peer-to-
peer market in the EU. The consultation included specific questions on crowdfunding-related activities, on 
automated  matching  platforms  that  apply  innovative  technologies  and  their  relative  impact.  On  a  total  of 
226  responses  to  the  public  consultation,  on  average,  66.4%  of  stakeholders  responded  to  the  specific 
questions on crowdfunding, peer-to-peer/marketplace lending. Around 68% of respondents to the specific 
questions were supportive of the fact the specific changes should be made. 

The key messages emerging from the assessment of the responses to the consultation were: 

1.  National regimes hinder the development of the crowdfunding / peer-to-peer lending markets at 
the  EU  level  -  More  than  half  of  the  respondents  considered  that  current  national  regulatory 
regimes for crowdfunding / peer-to-peer lending in Europe have a direct impact on the development 
of  these  markets  and  on  the  sector's  development.  This  belief  was  shared  across  by  all  types  of 
respondents  (private 
international 
organisations). 

individuals,  private  organisations,  public  authorities  and 

2.  EU  regulatory  intervention  needed  to  harmonise  the  regulatory  framework,  counter  market 
fragmentation,  preserve  financial  stability,  ensure  a  level-playing  field  and  limit  regulatory 
arbitrage - Almost half of the respondents believed that national regulatory regimes hindered cross-
border  crowdfunding  /  peer-to-peer  lending  activity  and  that  harmonisation  at  the  EU  level  was 
required  in  particular  to  counter  the  fragmentation  of  the  EU  market  mainly  attributable  to 
divergences in the regimes adopted by different Member States. 

3.  National regimes limit competition - Some stakeholders argued that hindering cross-border activity 
by juxtaposing national regulations impeded real competition, and made it difficult for platforms to 
scale up and reach the necessary size to be profitable in the longer term. 

4.  EU regulatory intervention needed to reduce lack of trust and information asymmetry - For some 
stakeholders,  a  EU  regulatory  intervention  is  needed  mitigate  the  lack  of  trust  and  information 
asymmetry (e.g. investors need to better understand the level of risk that they incur into when using 
foreign platforms). In the same vein, stakeholders emphasised that higher degrees of transparency 

69  Text  of  question  3.3  -  What  are  the  existing  regulatory  barriers  that  prevent  FinTech  firms  from  scaling  up  and 
providing services across Europe? What licensing requirements, if any, are subject to divergence across Member States 
and what are the consequences? Please provide details. 
70  Text  of  question 3.4  - Should the EU introduce new licensing categories for FinTech activities with  harmonised and 
proportionate  regulatory  and  supervisory  requirements,  including  passporting  of  such  activities  across  the  EU  Single 
Market? If yes, please specify in which specific areas you think this should happen and what role the ESAs should play in 
this. For instance, should the ESAs play a role in pan-EU registration and supervision of FinTech firms? 

62 

 
                                                            
could  help  reducing  financial  integrity  risks.  In  crowdfunding  /  peer-to-peer  lending  platforms, 
different types of risks are likely to appear: insolvency of the platform operators, misappropriation 
of client funds or assets, conflict or misalignment of interest, security of client data, etc.  

What clearly emerged from the assessment of the responses was that a legislative intervention is considered 
necessary first to reduce market fragmentation and to remove obstacles to cross-border expansion. 73% of 
respondents  replied  positively  to  the  fact  that  a  EU  intervention  would  be  also  needed  to  harmonise  the 
existing  definitions  of  crowdfunding  /  peer-to-peer  lending  at  the  EU  level,  to  reduce  divergent  national 
licensing  requirements  as  well  as  to  diminish  uncertainty  in  the  application  of  current  national  bespoke 
regimes preventing the scaling up of crowdfunding / peer-to-peer lending activities at EU level. 

1.2. 

Feedback on the inception impact assessment 

A public consultation on the Inception Impact Assessment was launched on the 30 October 2017 and closed 
on  the  27  November  2017,  in  which  stakeholders  were  asked  to  provide  views  concerning  the  context, 
problem definition, objectives and policy options of possible EU action. The Commission Services received 41 
feedbacks  from  individuals,  companies,  public  organisations  and  governments  coming  from  16  Member 
States. The feedback focused predominantly on the four policy options and can be summarised as follows: 

1)  Respondents  generally  welcomed  the  initiative  and  agreed  on  the  need  for  EU  action,  stressing  that 
further  development  of  the  crowdfunding  market  to  be  capped  under  the  laws  in  force.  No  respondent 
supported option 1 (status quo). 

2) Three respondents (two competitors and a crowdfunding industry association) expressed their preference 
towards  option  2,  arguing  that  the  industry  is  still  young,  and  it  should  be  given  the  possibility  to  freely 
develop in an enabling regulatory environment: therefore a light touch approach would be preferable. 

3)  Eleven  respondents  (four  competitors,  two  consumer  protection  associations,  one  platform,  one  SME 
organisation,  one  academic  institution  and  a  Member  State  Ministry)  argued  that  option  3  would  be 
desirable,  as  it  strikes  an  optimal  balance  between  securing  reliability  and  trust  among  investors  and 
creating  a  level  playing  field:  especially  the  latter  was  indicated  as  a  vital  issue  for  allowing  crowdfunding 
platforms to effectively compete with other funding providers and raise the crowdfunding market volume. 
Such a level playing field could be only achieved, according to these respondents, by directly intervening on 
the  national  legislations,  so  to  eliminate  those  inconsistencies  in  the  implementation  of  the  EU  legislation 
preventing the cross-border scale-up of operations.  

4)  Eight  respondents  (four  crowdfunding  platforms,  two  SME  organisation,  a  competitor  and  a  EU  citizen) 
suggested  the  European  Commission  to  go  ahead  with  option  4,  for  two  main  reasons:  on  one  hand  this 
option would allow platforms that are not willing to scale up their operations to continue operating under 
the national regulations those are already compliant with, whilst platforms eager to go cross border could do 
so  by  opting  in the  EU regime.  On  the  other hand,  being  this  a  standing-alone  regime,  there would  be  no 
gold-platting risk, hence its consistent application would be granted. 

5) Ten respondents (seven from crowdfunding industry, one business association, one SME organisation and 
one EU citizen) declared to appreciate both options 3 and 4. One of them found option 4 to be a fall back of 
option 3, to be chosen if the latter takes too long to be enforced of if proves impossible to implement, and 
this  view  was  also  shared  by  one  more  respondent,  who  found  option  4  would  provide  for  a  balanced 

63 

 
framework in case option 3 was not chosen. Another respondent found that option 3 is the best choice in a 
long term period, but that option 4 is the most viable in the short term. 

6)  Three  crowdfunding  industry  organisations  proposed  a  tailored  option,  in  between  options  3  and  4, 
proposing a harmonisation of national regimes such to grant a level playing field and, at the same time, such 
to prevent Member States from goldplating in the implementation phase.  

The  Commission  Services  also  discussed  the  inception  impact  assessment  with  the  Expert  Group  of  the 
European Securities Committee on 10 November 2017. Most of the Member States recognised the need for 
regulatory  intervention  at  EU  level  to  address  the  cross-border  issues  that  platforms  face.  While  some 
Member  States  considered  that  a  choice  between  options  3  and  4  would  depend  on  further  clarifications 
and the exact requirements that are set out under each, some other Member States expressed a preference 
for harmonisation of national regimes (option 3). Two Member States were sceptical about the usefulness of 
EU legislation in this field. Three Member States also suggested that it might be useful to consider action on 
Initial Coin Offerings. 

1.3. 

Previous public consultations 

In addition to the recent Fintech and the Inception Impact Assessment public consultations, the Commission 
services collected stakeholder views through three previous consultations: 

  a  public  consultation  on  the  'Capital  Markets  Union  mid-term  review'  (2017)  to  which  many  of  the 
respondents argued in favour of the development of a proper legal framework for crowdfunding / peer-
to-peer lending across the EU. In particular, developing a  pan-European harmonised disclosure regime 
for  crowdfunding  /  peer-to-peer  lending  amounts  that  are  below  the  exemption  thresholds  of  the 
recently  agreed  Prospectus  Regulation  was  also  described  as  essential  by  some  national  regulators.  In 
addition,  respondents  sated  that  the  application  of  FinTech  innovations  must  ensure  appropriate 
investor and consumer confidence and protection 

  a public consultation on 'Building a Capital Markets Union71' (2015), whose main aim was to consult all 
interested  parties  on  the  Commission’s  overall  approach  to  improving  access  to  financing  for  all 
businesses  across  the  EU,  increasing  and  diversifying  the  sources  of  funding  and  making  the  markets 
work  more  effectively.  From  the  assessment  of  the  responses  to  question  972,  it  emerged  that  the 
development of the crowdfunding market has been quite different across the EU across. Some Member 
States have taken legislative measures to enhance the potential of crowdfunding / peer-to-peer lending; 
while these national approaches might encourage crowdfunding / peer-to-peer lending activity locally, 
but  may  not  be  necessarily  compatible  with  each  other  in  a  cross-border  context.  Furthermore, 
respondents to the CMU Green Paper consultation identified a number of barriers to the development 
of  appropriately  regulated  crowdfunding  /  peer-to-peer  lending  platforms:  regulatory  barriers,  poor 
availability  and  quality  of  information,  and  other  barriers  such  as  a  lack  of  secondary  markets  and 
taxation  barriers.  Some  respondents  considered  that  EU  intervention  would  facilitate  cross-border 
transactions at lower costs 

71  The  European  Commission,  Green  Paper  on  Building a  Capital Markets  Union,  COM(2015)  63  final,  {SWD(2015) 13 
final}, 18.02.2015, available here  
72 Text of question 9 - Are there barriers to the development of appropriately regulated crowdfunding or peer to 
peer platforms including on a cross border basis? If so, how should they be addressed? 

64 

 
                                                            
  a public consultation on  'Crowdfunding in the EU  – exploring the added value of  potential EU action73' 
(2013),  which  received  893  responses  and  whose  aim  was  to  explore  how  EU  action  could  promote 
crowdfunding / peer-to-peer lending in the EU. Also in this case, from the assessment of the responses 
to  the  consultation, 
level  of 
harmonisation  across  the  EU  and,  in  this  regard,  a  EU  legislative  action  was  supported    by  most 
stakeholders 

it  emerged  that  most  stakeholders  considered  desirable  higher 

2. Further targeted consultations 

The  Commission  Services  also  consulted  through  workshops,  bilateral  meetings  and  other  means  with  the 
European  Supervisory  Authorities,  National  competent  authorities,  Member  States,  trade  bodies  and  their 
members as well as consumer groups. Three regulatory workshops on crowdfunding / peer-to-peer lending 
with Member States were held in December 2014, February 2016 and in November 2017, in the framework 
of the Expert Group of the European Securities Committee (EGESC).74 Experts pointed to a number of issues 
that could be addressed in order to avoid legal barriers and promote crowdfunding / peer-to-peer lending 
activity in the EU, such as information sharing, data gathering, establishing a common taxonomy, supporting 
passporting,  and  more  convergent  information  disclosure  requirements  for  securities  issues  below  the 
prospectus threshold.  

The Commission has also set up a European Crowdfunding Stakeholder Forum (ECSF) in 2015 as the expert 
group  of  representatives  of  associations  of  concerned  stakeholder  groups  and  national  authorities. 
Workshop  was  held  on  cross-border  crowdfunding  in  June  2017  on  the  study  "Identifying  market  and 
regulatory obstacles to the cross-border development of crowdfunding in the EU". Finally, the Commission 
engaged in a series of bilateral calls and discussions with platforms that engage in cross-border activity to 
discuss the issues they are facing. It was clearly identified that even platforms with a MiFID passport have 
difficulties in expanding operations across borders.  

3.Overview by stakeholder groups from the consultations 

Following  the  open  public  consultations,  targeted  discussions,  and  the  inception  impact  assessment, 
stakeholders are generally supportive of an EU initiative: 

  Member States tend to support EU regulation in this area and some suggested we should propose a 

harmonisation of national regimes, as long as the rules are proportionate. 

 

Industry: Platforms generally considered that the fragmentation of national crowdfunding regulation 
significantly  increased  the  time  and  cost  for  expanding  abroad  and  that  this  either  reduces 

73  The  European  Commission,  Consultation  document  on  crowdfunding  in  the  EU  –  Exploring  the  added  value  of 
potential EU action, 03.10.2013, available here  
74    Minutes  of  both  meetings  (held  on  18  December  2014  and  10  February  2016,  respectively)  are  available  at: 
http://ec.europa.eu/finance/securities/egesc/index_en.htm.   

65 

 
 
 
 
 
 
                                                            
significantly  cross-border  ambitions  or  discourages  to  engage  with  it  in  the  first  place.  Enabling 
regulation  at  the  EU  level  should  help  remove  barriers  in  some  Member  States  that  currently 
prevent or render severely more complicated the development of platforms on a cross border basis, 
but again as long as the rules are proportionate. 

 

Investors: concerns about the reliability of the investment and the lack of regulation of platforms are 
the two most important reasons not to invest for both forms of crowdfunding. 

  SMEs would welcome a regime that would provide for more alternative finance opportunities; trust 

in platforms for fund raisers is as important as for investors. 

  Supervisors (ESMA, EBA) underline that the risks in the sector need to be adequately addressed. 

4. European Commission's publications 

The Commission published a Staff Working Document "Crowdfunding in the EU Capital Markets Union75" in 
2016.  The  Staff  Working  Document  assesses  national  regimes,  identifying  best  practice,  and  presents  the 
results of the Commission's monitoring of the evolution of the crowdfunding / peer-to-peer lending sectors. 
The report demonstrated that that crowdfunding / peer-to-peer lending remain relatively small in the EU but 
is developing rapidly. It has the potential to be a key source of financing for SMEs over the long term. 

5. External studies 

The  Commission  Services  commissioned  a  number  of  studies  aimed  at  improving  the  general  knowledge, 
collecting data and evidence on the developments in crowdfunding / peer-to-peer lending markets, business 
models  and  regulatory  frameworks.  In  this  respect,  the  following  four  studies  provided  the  Commission 
Services with additional element in support to the development of an impact assessment: 

 

 

 

In November 2017, a study from the European Crowdfunding Network and Osborne Clarke "Identifying 
market and regulatory obstacles to the cross-border development of crowdfunding in the EU", providing 
an  assessment  of  the  potential  for  development  of  cross-border  crowdfunding  /  peer-to-peer  lending 
business  and  illustrating  the  market  and  regulatory  barriers  that  platforms  currently  face  when 
attempting  to  transact  across  borders.  It  also  illustrates  the  ways  in  which  platforms  are  currently 
attempting to overcome these barriers and that this involves very high transaction costs. Furthermore, it 
provides  an  analysis  of  the  disclosures  and  safeguards  currently  mandated  at  national 
level, 
recommended by industry code of conduct as well as voluntarily applied by the platforms themselves. 
Finally, it provides an analysis of 6 main European markets for crowdfunding and an overview of all EU 
markets. 

In  January  2017,  a  study  (prepared  by  EY,  Open  Evidence,  Politecnico  di  Milano  and    European 
Crowdfunding  Network)  assessing  whether  alternative  finance  has  the  potential  to  help  finance  for 
innovative companies to support research and innovation76.  

In April 2016, the Financial Services Users Group (FSUG) published a study (prepared by Oxera) assessing 
(i) the level of awareness among the general population of potential (and actual) users of crowdfunding / 

75 The European Commission, Crowdfunding in the EU capital markets union, CWD(2016) 154 final 
76 Assessing the potential for crowdfunding and other forms of alternative finance to support research and innovation". 
Available 
https://publications.europa.eu/en/publication-detail/-/publication/3190dbeb-316e-11e7-9412-
01aa75ed71a1  

at: 

66 

 
 
                                                            
peer-to-peer  lending  as    forms  of  seeking  a  financial  return;  and  (ii)  among  those  who  are  aware  of 
crowdfunding / peer-to-peer lending, the level of awareness of the associated risks77.  

 

In November 2015, a study (prepared by Crowdsurfer and EY) mapping crowdfunding markets in the EU 
(both  platforms  and  projects)  in  the  period  2013-14  and  analysing  selected  national  legislative 
interventions on crowdfunding, including market trends before and after those interventions.78 

6. Other EU institutions and authorities' work on crowdfunding / peer-to-peer lending 

The European Commission has also benefitted from the work done by the European Supervisory Authorities 
(ESAs),  which  have  also  carried  out  work  on  crowdfunding  /  peer-to-peer  lending.  In  particular,  the  ESAs 
published: 

  An  opinion79  and  an  advice80  issued  by  the  European  Securities  and  Markets  Authority  (ESMA)  on 
investment-based crowdfunding. In its considerations, ESMA highlighted that significant risks potentially 
affecting crowdfunding / peer-to-peer lending are not currently addressed at the EU level. In this respect, 
ESMA  concluded  that  the  development  of  a  EU-level  regime  for  crowdfunding  /  peer-to-peer  lending 
could be considered81 

  An  opinion  issued  by  the  European  Banking  Authority  (EBA)  on  lending-based  crowdfunding82.  EBA 
started  its  analysis  of  lending-based  crowdfunding  in  autumn  2013,  with  a  view  to  determine  the 
potential risks to participants in this markets (i.e. lenders, borrowers and platform providers); the driver 
of  these  risks  and  to  assess  the  extent  to  which  regulation  would  be  required  to  ensure  that  market 
participants can have confidence in this market innovation. The EBA concluded that 'the convergence of 
practices  across  the  EU  for  the  supervision  of  crowdfunding  is  desirable  to  avoid  regulatory  arbitrage, 
create level-playing field, ensure that market participants can have confidence in this market innovation, 
and contribute to the single European market'83. 

at: 

EU 

and 

from 

study. 

events 

investor 

markets 

mapping 

Available 

Crowdfunding 

Crowdfunding: 

perspective".  Available 

http://ec.europa.eu/finance/general-

https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1560_advice_on_investment-

https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1378_opinion_on_investment-

77 
an 
policy/docs/crowdfunding/160428-crowdfunding-study_en.pdf  
78 
https://ec.europa.eu/info/sites/info/files/crowdfunding-study-30092015_en.pdf  
79 
based_crowdfunding.pdf  
80 
based_crowdfunding.pdf  
81 
based_crowdfunding.pdf , p.5 point 9 
82  ESMA's Opinion and Advice are available at: https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-
1378_opinion_on_investment-based_crowdfunding.pdf 
and 
https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1560_advice_on_investment-
based_crowdfunding.pdf 
https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-
03+(EBA+Opinion+on+lending+based+Crowdfunding).pdf .   
83 
based_crowdfunding.pdf , p.2, points 8 and 9 

https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1560_advice_on_investment-

https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1560_advice_on_investment-

respectively; 

available 

Opinion 

EBA's 

at: 

at 

is 

, 

67 

 
 
 
                                                            
 
Annex 3: Who is affected and how? 
Practical implications of the initiative 

There  will  be  no  direct  implications  for  enterprises  falling  under  the  scope  of  the  initiative  due  to  the 
element of optionality. The regime will provide an opportunity to adopt an optional label if found needed for 
cross-border  expansion  into  the  Single  Market.  However  if  platforms  wish  to  remain  under  their  current 
regime, this initiative will not have any direct implications on them. Indirectly, these platforms may become 
subject  to  higher  levels  of  competition  from  other  platforms  within  the  Single  Market  that  will  adopt  this 
label and thus freely expand across borders. 

For platforms that choose to adopt the European label, this initiative will provide a legal framework for them 
to freely provide their services across European borders. The regulatory requirements under this framework 
will be less costly then under MiFID. However, they may, depending on the home country,   
more 
restrictive and demanding than the national regime. This will however still be beneficial as platforms will be 
able  to  operate  under  legal  certainty  throughout  the  EU,  something  which  was  previously  unavailable, 
required  costly  legal  consultations  and  in  some  cases,  changes  in  the  core  business  model  that  prevented 
scalability. One advantage however, will be the fact that a platform will have to give up its' national license if 
it chose to operate under the EU regime in order to ensure that requirements under the two licenses do not 
clash and that the platform can enjoy full passportability. 

be 

Investors will first of all enjoy the benefits of a clear pan-European framework that will provide for certainty 
when  investing  on  crowdfunding  platforms  in  different  Member  States.  A  coherent  and  commonly 
recognised EU label will decrease their search costs when selecting platforms and reduce misinterpretations 
of  the  terms  and  conditions  applicable  to  an  investment.  Saved  time  will  potentially  be  used  for  better 
evaluation  of  particular  investments  and  thus  may  result  in  better  returns.  Furthermore,  this  will  provide 
investors with advanced sectoral and geographical  diversification opportunities for their investments,  thus 
decreasing risk exposure. 

Local administrations that frequently interact with platforms attempting to enter their home market place 
will save time and resources. As the European label will be authorised by a central European authority, there 
will be limited opportunities for arbitrage and risk of loose interpretation by other jurisdictions that the host 
country would have to prevent. This will also to some extent reduce the administrative burden and increase 
efficiency  as  platforms  will  not  have  to  set  up  a  different  platform  in  each  Member  State  they  wish  to 
operate in.  

The  proposal  will  also  have  practical  implications  for  the  European  Securities  Markets  Authority  (ESMA). 
Holding  the  authorisation  and  supervisory  powers,  ESMA  will  likely  have  to  hire  additional  staff  (2-3 
individuals) that would carry out the functions foreseen in Option 4 and would thus result in additional costs 
for the Authority. This would however ensure consistent interpretation of rules and business models. 

68 

 
 
Summary of costs and benefits 

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Type 
entity 

of 

Amount 

Direct benefits 

Compliance 
cost 
reductions 

MiFID 
licensed 
platforms 

As the Regulation does not foresee any minimum capital requirements for ECPs, 
there would be a reduction of minimum capital of EUR 50,000 – 125,000 per firm 
(depending on the type of MiFID license).  

This would bring about a total potential one-off cost reduction of EUR 550 000 –1 
375  000.  This  figure  is  based  on  the  assumption  that  all  currently  MiFID 
authorised  ECPs  who  hold  a  licence  only  for  'order  transmission'  and  'placing 
without firm commitment' (11 firms currently84) would apply for the ECP licence 
and drop out of MiFID.  

It is furthermore estimated these MiFID licensed platform operators could save 
EUR 2 500 – 5 500 on recurring compliance costs (business conduct & operational 
requirements). Assuming again that all 11 MiFID licenced ECPs that engage only 
in 'order transmission' and 'placing without firm commitment' would opt into the 
new regime, this would imply a cost reduction of EUR 27 500 – 60 500 across the 
industry per year.  

In  addition,  all  MiFID  licenced  ECPs  (42  in  total  including  platforms  that  act  as 
tied agents of MiFID firms) would save authorisation fees and compliance costs 
when  entering  markets  that  currently  have  a  bespoke  national  crowdfunding 
regime  in  place.  The  total  one-off  compliance  costs  to  access  markets  with 
national regimes are estimated to lie in the range of EUR 17 750 – 34 000.85 This 

Comments 

The  costs  saving  estimates  with  regard  to  the  national  bespoke 
regimes  assume  that  MiFID  regulated  platforms  would  offer 
services  in  half  of  the  Member  States  that  currently  require 
additional  authorisation  (9  Member  States)86  i.e.  the  42  MiFID 
licenced  ECPs  would  save  EUR  17,750  –  34,000  times  4.5.  This 
cost  saving  figure  is  strongly  dependent  on  the  assumption 
regarding ECPs planned cross-border expansion. It should also be 
noted  that  the  costs  arising  from  entering  national  regimes  will 
vary  strongly  across  Member  States  and  that  there  is  a  lack  of 
accurate  cost  data  in  general.  The  figure  represented  here  is 
based  on  a  survey  which  only  produced  broadly  reliable  figures 
for ES, FR and the UK. 

84 Source: ESMA Crowdfunding survey and input from targeted consultation  
85 Average based on ECENTRCOLLAB survey  

69 

 
 
                                                            
assumption implies a (one-off) cost saving in the range of EUR 3 354 750 and EUR 
6 426 000 across the industry.  

Other 
platforms  

Platforms  would  save  authorisation  fees  and  compliance  costs  when  entering 
markets  that currently have a bespoke crowdfunding regime in place. The total 
one-off costs under national regimes are estimated to lie in the range of EUR 17 
750  –  34  00087.  Assuming  that  respective  operators  are  regulated  under  one 
existing bespoke regime already, this would imply total potential cost savings of 
EUR 13 490 000 – 25 840 000 based the current number of platforms regulated 
outside of MiFID (190) and assuming that they would offer services in half of the 
other  Member  States  with  a  bespoke  regime  (9  in  total  but  already  holding 
authorisation in one of them). 

In  addition,  equity  based  platform  operators  regulated  outside  of  MiFID  (60  in 
total)  would  save  the  costs  of  acquiring  a  MiFID  licence  which  they  would 
currently  need  to  hold  in  order  to  access  Member  States  that  do  not  have  a 
bespoke regime in place. This would bring costs savings of: 

EUR 1 500 000 – 3 000 000 (capital requirements)  

EUR  195  000  –  240  000  (recurring  cost  saving  annually  compared  to  estimated 
costs under MiFID)  

The costs savings in relation to MiFID only apply to  investment-
based platforms that currently do not hold a MiFID licence (60). 
It is assumed that half of these firms would decide to also hold a 
MiFID  license  in  order  to  access  Member  States  applying  MiFID 
to investment-based crowdfunding. The saving potentials do not 
account for other costs such as cost of establishment, legal costs 
or other technical assistance.  

Lower 

SMEs 

SMEs would benefit in terms of reduced funding costs compared to other forms  Funding costs are the result of both market (macro) interactions 

86 This will depend on the business model of the platform operator, the instruments on the platform as well as the national regulatory and supervisory approach. Given the current setup of 
national bespoke regimes, it is assumed that platform operators holding a MiFID licence may potentially face problems concerning recognition of their MiFID passport in 9 Member States 
(AT, BE, ES, FR, IT, DE, PT, FI, LT)  
87 Average based on ECENTRCOLLAB survey and input from targeted consultation 

70 

 
                                                                                                                                                                                                                                                                                                                          
funding  costs 
for SMEs 

Indirect benefits 

of  financing  currently  used.  It  is  estimated  that  financing  via  crowdfunding 
platforms can reduce funding costs of SME's significantly. Average fees for equity 
crowdfunding issuance range between 5% and 7%, compared to interest rates on 
bank overdrafts and short-term unsecured bank lending (which are key financing 
tools for SMEs).88   

contractual 

and  bilateral 
relationships.  They  are  also 
idiosyncratic, as depending on the individual risk of the firm. As a 
result, it is not possible to make a total estimate of the benefits 
(in terms of funding costs) that will trickle down to businesses. 

Investors 

A small fraction of EUR 720 billion.   

Platforms 

Between EUR 20 and 25 billion  

Portfolio 
diversificatio
n 

Network 
effects 
(scaling 
effect) 

up 

Crowdfunding platforms  would  enable  alternative  finance  as  an 
alternative investment vehicle for European investors who sit on 
a large stock of cash that could be allocated in other ways (EUR 
720 billion).89 

Platforms would be able to expand within the single market and 
enjoy the network effects, as described in section 1.1.1.2. When 
using the size relative to GDP of the crowdfunding market in the 
US  (which  has  a  more  mature  crowdfunding  market)  as  a 
measure  of  potential  network  effects  in  a  Single  Market,  the 
crowdfunding  cost  of  non-Europe  can  be  estimated  as  much  as 
EUR  29  billion  (i.e.  the  difference  between  the  crowdfunding 
market size today and what it could have been if the market was 
developed cross-border like the US). 

88 See SAFE survey available at https://ec.europa.eu/docsroom/documents/26641. 
89 This estimate suggested by the   

71 

 
                                                            
II. Overview of costs (per entity) – Preferred option 

Consumers -Investors 

Businesses 

Administrations90 

On
e-
off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

- 

- 

Investment-based 

Lending-based 

Investment-based 

Lending-based 

Authorisat
ion 

Direct 
costs 

- 

- 

EUR 5, 000 – 10 000  per license91 
Does  not  apply  to  already  MiFID 
authorised  firms.  This  implies  that 
total  cost  on  industry  would  be  in 
the  range  of  EUR  300  000  –  600 
00092  (if  all  platforms  are  assumed 
to opt-into the ECP regime) 

EUR 5, 000 – 10 000  
per license fee 
Total 
on 
costs 
industry would be in 
the  range  of  EUR 
650  000  –  1  300 
00093 (if all platforms 
are  assumed  to  opt-
into the ECP regime) 

EUR 1 000-2 500 
Estimate  to  account 
to 
updates 
requests 
(infrequent 
average) 

for  potential 
and/or 
from 
regulator 
i.e.  estimated  annual 

authorisation 
the 

to 

to 
for 

EUR  1  000  -  2 
500 
Estimate 
account 
potential 
updates 
authorisation 
and/or  requests 
from 
the 
regulator 
i.e. 
(infrequent 
estimated annual 
average) 

EUR 500 00094 

These  costs  will 
be  mainly  arise 
the 
from 
necessary 
IT 
changes  in  order 
to 
set  up  an 
authorisation  as 
well 
as 
supervisory 
system. 
These 
fixed  costs  are 
expected  to  arise 
over  a  one  year 
preparatory 
phase and 1st year 
of 
full 
implementation 
of 
the 
regime.  

new 

EUR  520  000  –  650 
000 95 
This  assumes 
that 
ESMA would need 4-
5 FTE in order to deal 
with 
authorisation 
requests 

90 The recurrent administrative costs represented in this table reflect costs estimates once the Regulation is fully implemented in 2020    
91 Estimate based on average direct authorisation costs in Member States under bespoke regimes (EUR 4,900 for investment-based; EUR 5,200 for lending-based - Source: ECENTRCOLLAB 
survey, costs only available for AT, NL, FR, MT,NL and UK) and MiFID authorisation costs for 'moderately complex firms' (estimated in the range of EUR 5,500 - 15,000) 
92 Based on ESMA figures on number of platforms already MiFID regulated (33 of a total 99 platforms) 
93 Based on ESMA figures and ECN volumes we estimate that there are currently a total of 130 lending-based platforms 
94 Estimate based on cost estimated provided by ESMA and DG FISMA estimations   
95 Based on salary calculations provided by ESMA and DG FISMA estimations 

72 

 
 
 
 
 
                                                            
Indirect 
costs 

- 

- 

EUR 10 000 – 25 00096 

EUR  10  000  –  25 
00097 

N/A 

EUR 7 500 – 30 00098 

N/A 

Organisati
onal  rules 
(governan
ce 
& 
operation) 

Direct 
costs 

- 

- 

EUR 5 000 – 25 000 

Magnitude  will  heavily  depend  on 
current  organisational  setup  of  the 
platform  operator  and  required 
changes needed. 
The  estimates  cover  the  costs  to 
meet requirements as regards: 
-  Communication  channel  between 
investor & fund seeker 
- Protection of personal data 
- Fit and properness 
- Record keeping 
- KYC due diligence 
The 
costs  mainly  arise 
changes needed to the IT systems. 

from 

Does  not  apply  to  already  MiFID 
compliant firms. 

Magnitude 
will 
heavily  depend  on 
current 
organisational  setup 
platform 
of 
the 
and 
operator 
required 
changes 
needed. 
The  estimates  cover 
the  costs  to  meet 
requirements 
as 
regards: 
- 
channel 
investor  & 
seeker 
- 
personal data 
- Fit and properness 
- Record keeping 
- KYC due diligence 
The 
costs  mainly 
arise  from  changes 
needed  to  the 
IT 
systems. 

Communication 
between 
fund 

Protection 

of 

EUR  7  500  –  10 
00099 
These 
recurrent 
costs relate mainly 
to maintaining the 
IT 
systems  and   
storage of data 

EUR  7  500  –  10 
000 
recurrent 
These 
costs 
to 
maintaining  the  IT 
systems 
and   
storage of data 

relate 

EUR  7  500  –  10 
000 
These  recurrent 
costs  relate 
to 
the 
maintaining 
IT  systems  and   
storage of data 

EUR 390 000 - 520 000100 
This  assumes  that  ESMA  would  need  2-3 
FTE  in  order  supervise  and  monitor  for 
  and 
compliance  with  organisational 
conduct rules 

Indirect 
costs 

- 

- 

- 

- 

- 

- 

- 

96 Estimate based on assumption that one person working full-time will spend 1 -3 months on the preparation of the authorisation (at EUR 75,000 annual salary) plus other additional costs 
such as technical and legal assistance, meeting potential national audit requirements etc.    
97 Same assumptions as for investment-based platforms 
98 Lending-based platforms are estimated to have EUR 2,500 – 5,000 higher one-off costs to account for less stringent conduct rules for lending based platforms currently in place  
99 Based on one-off costs for meeting organisational requirements in MiFID IA, assuming that costs would be lower given  more proportionate / less stringent requirements in ECP regime  
100 Based on salary calculations provided by ESMA and DG FISMA estimations  

73 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
                                                            
Conduct 
rules 

- 

- 

Direct 
costs 

- 

- 

KIIS 

Indirect 
costs 

- 

- 

Additional 
Costs  

TOTAL 
COSTS 

current  business 

EUR 1 500 – 4 000101 
Will depend on exact requirements 
conduct 
and 
procedures of operator. 
Does  not  apply  to  already  MiFID 
compliant firms 

EUR 2 500 – 6 000102 
Will depend on exact 
and 
requirements 
current 
business 
conduct  procedures 
of operator. 

EUR 1 000 – 2 000 

EUR  1  000  –  2 
000 

EUR 390 000 - 520 000103 
This  assumes  that  ESMA  would  need  2-3 
FTE  in  order  supervise  and  monitor  for 
compliance  with  organisational 
  and 
conduct rules 

The  estimated  one-off  administrative  burden  of  a  KIIS 
are104,  given  the  online  technology  and  the  foreseen 
regulatory  regime,  EUR  3  000  of  which  EUR  1  000 
regulatory cost. 

Ongoing  estimated  costs  of  a  KIIS 
(for  updating 
documents) are EUR 1 600 (EUR 1 000 for preparation and 
dissemination and EUR 600 for regulatory costs). 

- 

EUR  520  000  –  650 
000105 
This 
that 
assumes 
ESMA would  need 4-5 
in  order  check 
FTE 
new KIIS106 

- 

- 

- 

- 

Supervisory fees EUR 10 000 107 

EUR  19  500  -  24 
500108  

EUR 19 500 – 24 500 109 
Plus EUR 1 600 per updated KIIS (i.e. depends on number 

EUR 500 000 

for 
Translation 
authorisation 
and 
communication  with 
ECPs EUR 350 000 
Mission  expenses  and 
other 
operational 
costs EUR 100 000 
Recurrent IT costs EUR 
50 000  

EUR 2 320 000 – 2 840 
000 

101 Based on one-off cost estimate for previously MiFID exempt firms under Art. 3 and assuming that costs would be lower given more proportionate / less stringent requirements in ECP 
regime  
102  Same  assumptions as  for  investment-based  but  adding  a  further  EUR 1  000  – 2  000  to  account  for  less  stringent conduct  rules  for  lending  based  platforms under national  regimes  / 
consumer credit licenses (as platforms are only seen as credit intermediaries, requirements are generally less stringent)   
103 Based on salary calculations provided by ESMA and DG FISMA estimations  
104 The estimated cost is extrapolated from the estimated burden as stated in SWD(2012) 187 "Key information documents for investment products" Final (p95). 
105 Based on salary calculations for FTE  in the ESA Review Impact Assessment 
106  This  figure  assumes  that  there  will  be  approximately  12,000  projects  annually  with  half  an  hour  spent  on  each  KIIS  and  200  working  days  per  year,  leaving  spare  capacity  for  future 
increase in the number of projects  
107 It is foreseen that supervisory fees will be capped at 0.5% of revenues of respectively supervised ECPs. Assuming an average revenue of EUR 2 000 000 this would imply supervisory fees 
of 10 000  
108 Depending on revenue of the respective ECP and supervisory fees incurred  

74 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
(per firm) 

of  KIIS  to  be  updated  as  well  as  possible  costs  division 
between platform and fundraiser) 

Plus  EUR 1 600 per 
updated  KIIS  (i.e. 
on 
depends 
number  of  KIIS  to 
be  updated  as  well 
as  possible  costs 
between 
division 
and 
platform 
fundraiser)  

109 Depending on revenue of the respective ECP and supervisory fees incurred 

75 

 
                                                                                                                                                                                                                                                                                                                          
Annex 4: Overview of Crowdfunding regulatory Frameworks 110in a selection of EU Member States 

Austria 

Belgium 

Spain 

France 

UK 

Italy 

Germany 

Portugal 

Finland 

Lithuania 

Bespoke regime 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Scope 

Shares,  bonds, 
business shares 
limited 
in 
companies  and 
cooperatives, 
participation 
rights, 
partnerships 
and 
subordinated  

silent 

Securities 
lending 
businesses) 

and  
(to 

law 

In  Belgian 
terms: 
“Investment 
instruments 
by 
issued 
companies  or  by 
investment 
vehicles  (“one-to-
one” vehicles)” 

Securities 
lending 

and 

Bespoke 
regime: 
ordinary  shares 
plain 
and 
vanilla 
fixed 
rate bonds. 

Securities 
lending 

and 

Equity  

Profit-
participating 
loans, 
subordinated 
loans,  or  other 
investment 
products 
(which 
grant  the  right  to 
interest 
and 
repayment,  or  in 
exchange  for  the 
temporary 
provision 
grant 
funds, 
claim 
for 
settlement).  

of 
a 
cash 

Financial 
Instruments granting 
rights 
share 
to 
capital,  a  share  in 
dividends  or  a  stake 
in  profit, 
lending, 
reward and donation  

Securities 
lending 
businesses) 

and  
(to 

Securities 
lending 
businesses) 

and 
(to 

Entry into force 

September 

1 
2015 

1 February 2017 

29 April 2015 

1 October 2014 

1 April 2014 

17  December 
2012  (Law)  and 
26  June  2013 
(Consob 
Regulation). 

10 July 2015 

Crowdfunding 
law: 
24  August  2015. 
Will enter into force 
when CMVM issues 
relevant 
regulatory 
rulings. 

September, 

1 
2016 

1 December, 2016 

110  It  should  be  noted  that  the  collected  material  reflects  a  simplified  summary  of  the  applicable  regime  as  self-reported  by  the  Member  States  or  interpreted  through  translations  of 
dedicated regulation within the Member State. 

76 

 
                                                            
 
BE  Entities  that 
authorized 
get 
under 
the 
regime 
bespoke 
do  not  benefit 
from 
EU 
the 
passport. 

Platforms that are 
authorized  in  the 
EEA  can  apply  for 
the  BE  bespoke 
regime 

Passport111 

Yes  if  MiFID 
platforms  (for 
transferable 
securities) 

No 
(because 
platforms do not 
provide  MiFID 
services)  

if  MiFID 

Yes 
platforms  

for 

No 
platforms 
registered  under 
exemption 
(Art.3 MiFID)  

if  MiFID 
(for 

Yes 
platforms 
transferable 
securities) 

if  MiFID 

Yes 
platforms  

for 

No 
platforms 
registered  under 
exemption 
(Art.3 MiFID) 

if  MiFID 
(for 

Yes 
platforms 
transferable 
securities) 

MiFID firms (BE or 
EEA)  can  by  right 
manage 
a 
crowdfunding 
platform 
defined 
bespoke regime 

as 
the 

in 

No.  Bespoke  regime 
not  adopted  under 
exemption  of  Art.  3 
for 
MiFID  except 
agents. 
tied 
are 
Platforms 
not 
therefore 
to 
authorized 
provide 
MiFID 
services  unless  the 
are 
platforms 
managed 
a 
financial 
intermediary. 

by 

Bespoke  regime  has 
specific 
requirements 
for the latter. 

also 

if  MiFID 

Yes 
platforms  

if  MiFID 

Yes 
platforms  

No  for  platforms 
registered 
under 
exemption  (Art.3 
MiFID) 

No  for  platforms 
registered 
under 
exemption  (Art.3 
MiFID) 

111 The table may not reflect practical nuances and different interpretations by national authorities when certain business models are deemed to fall outside the scope of certain legislation 
or fall within the scope of other. 

77 

 
                                                            
business 

Authorisation 
for 
investment 
consulting 
according 
to 
section 136a of 
Austrian 
Trading Act. 

Authorisation 

Or 

Authorisation 
for  Investment 
Services 
Undertakings 
according 
to 
section 4 (1) of 
the  Securities 
Supervisory 
Act.  

business 

For 
investment 
consulting: 
none.  

Minimum 
requirements 

capital 

MiFID 

For 
platforms:  
Depending  on 
the 
MiFID 
investment 
services 
activities 

and 

Authorisation  and 
registration by the 
FSMA 

Authorisation 
and  registration 
by  the  National 
Securities 
Market 
Commission 
(CNMV).  

For  MiFID  and 
non-MIFID 
platforms: 
authorisation  by 
AMF.  

Authorisation 
by FCA. MiFID 
authorisation 
but  firms  will 
also  need 
to 
consider 
whether 
they 
are  performing 
other  activities 
set  out  in  the 
Regulated 
Activities 
Order. 

Consob 
and 

Authorisation 
by 
(banks 
authorised 
investment 
companies 
not 
authorisation 
but  must  be 
enrolled  in  the 
Register 
of 
platforms) 

do 
need 

Professional 
liability  insurance 
least 
of 
at 
per 
€750,000 
and 
claim 
year; 
insurance 
this 
amount 
increases to €1.25 
million 
when 
investment advice 
is  given  or  when 
are 
instruments 
issued 
an 
by 
investment 
vehicle 

Initial:  €  60,000 
(share  capital), 
or 
a 
professional 
liability 
insurance  or  a 
combination  of 
both.  If  funds 
that  are  raised 
exceed 
€2 
million, 
minimum 
will 
equity 
to 
amount 
(and 
€120,000 
in 
increase 
proportion 
to 
the funds raised, 
€2 
to 
up 
million). 

None  for  non-
MiFID 
platforms.  

MiFID 

For 
platforms:  
Depending  on 
MiFID 
the 
investment 
services 
activities.  

and 

None 

IV 

CRD 
minimum 
capital 
requirements.  
The  minimum 
is 
requirement 
own 
funds  of 
€50,000.  

Platform  must  be 
an 
investment 
service  enterprise 
providing 
investment  advice 
or 
investment 
brokerage services 
(MIFID)  pursuant 
to  Section  32  of 
the  Banking  Act 
(Kreditwesengeset
z)  or  must  obtain 
authorization 
an 
pursuant 
to 
Section  34f  of  the 
Trade,  Commerce 
and 
Industry 
Regulation  Act 
(Gewerbeordnung 
– GewO) from the 
competent 
authorities  of  the 
federal 
states 
(Länder),  usually 
the 
trade  office 
(Gewerbeamt).  . 

MIFID 

For 
platforms: 
Depending  on  the 
MiFID investment 
and 
services 
activities.  

For platforms with 
a 
commercial 
license: 
professional 
liability insurance.  

Authorisation by the 
CMVM 

Registration  with 
Financial 
the 
Supervisory 
Authority.  Does 
if 
not 
apply 
registered 
in 
another  EEA  state 
and  operations  in 
Finland  are  only 
temporary. 

Registration  with 
the 
of 
Bank 
Lithuania.  

€50,000  or  liability 
insurance up to such 
amount. 

or 

€50,000 
appropriate 
professional 
liability  insurance 
policy, 
bank 
guarantee  or  other 
corresponding 
collateral. 

or 

€40,000 
professional 
liability  insurance 
than 
(not 
less 
for  a 
€100,000 
liability 
single 
claim 
and 
€500,000 in total);  
capital 
requirements to be 
re-calculated 
at 
the  end  of  each 
year 
and  must 
equal  0.2%  of  the 
amount  of  loans 
that have yet to be 
repaid. 

78 

 
 
  
 
Services provided  

N/A 

“Alternative 
funding  service”, 
which  is  defined 
the 
as 
“commercializatio
n, 
through 
electronic  means, 
of 
investment 
instruments 
issued 
by 
entrepreneurs  or 
investment 
vehicles”,  and 
not 
service 

is 
a  MiFID-

Platforms can also 
provide 
investment advice 
or RTO (MiFID Art. 
3 exemption) 

Reception, 
selection 
publication 
projects; 

and 
of 

Development, 
establishment 
and  exploitation 
of 
communication 
to 
channels 
the 
facilitate 
fundraising 
between 
investors 
promoters. 

and 

Ancillary 
services. 

Investment 
advice 

MiFID  services 
(mostly 
"reception  and 
transmission  of 
orders"). 

Reception  and 
transmission  of 
orders 

Investment  advice 
or  reception  and 
transmission 
of 
orders  

N/A 

and 
Reception 
of 
transmission 
orders 
and 
investment advice. 

N/A 

Financial 
instruments 

be:  

benefit 
the 

To 
from 
prospectus 
exemption, 
instruments 
must 
"alternative 
financial 
instruments" 
(shares,  equity 
shares,  bonds, 
shares 
in 
cooperative, 
participation 
rights, 
partnerships 
and 
subordinated 
loans) 
issued 
by  SMEs  (as 
defined 
by 
Recommendati
on 
2003/361/EC 
(i.e. 
transferrable 
securities) 

silent 

of 

types 

 All 
investment 
instruments 
(which 
is 
than 
“financial 
instruments”)  fall 
under 
the 
prospectus law 

larger 
MiFID 

Transferable 
securities, 
limited  liability 
company's 
shares 
that 
(provided 
the 
company's 
by-laws  ensure 
their 
transferability) 

Platforms 
authorised 
under  bespoke 
regime: 
ordinary  shares 
and  fixed  rate 
bonds 
(i.e. 
transferable 
securities). 
Mini-bons 
(up 
to  2.5  million 
per 
issuer  per 
year). 

MiFID 
platforms: 
financial 
instruments 
(Annex  1  C 
MiFID) 

and 
Equities 
debt  securities, 
transferable  and 
non-
transferable. 
Bespoke  set  of 
rules  for  non-
readily 
realisable 
securities 
(NRRS).  

Shares  or  units 
(quotas)  of  the 
equity capital of  
innovative  start-
ups 
and 
innovative 
SMEs;  units  or 
shares 
of 
collective 
investment 
undertakings  or 
other companies 
  at 
investing 
least  70% 
in 
innovative  start-
ups 
and 
innovative 
SMEs 

other 

To  benefit  from 
the 
prospectus 
exemption, 
instruments  must 
profit-
be: 
participating 
loans, 
subordinated 
loans, 
investment 
products  which 
grant  the  right  to 
interest 
and 
repayment,  or  in 
exchange  for  the 
temporary 
provision 
grant 
funds, 
claim 
for 
settlements. 

of 
a 
cash 

No  limitation  as  to 
financial 
the 
to  be 
instruments 
used 
funding 
for 
purposes. 

Transferable 
securities 
other 
instruments. 

and 
financial 

Financial 
instruments. 

79 

 
 
 
 
rules 
or 

KYC 
(suitability 
appropriateness; 
AML checks) 

to 

Platform 
establish 
identity of both 
and 
issuer 
investors. 
Compliance 
with 
money-
laundering  and 
terrorism 
financing 
legislation 

anti-

Checks  regarding 
the  
appropriateness 
of  the  investment 
investor; 
for  the 
warning 
issue 
be 
(can 
standardised) 
if 
investment  is  not 
suitable 
if 
investor  chooses 
to  provide 
not 
information 

or 

platform 
If 
an 
provides 
investment advice 
service, 
it  must 
also  comply  with 
MiFID  and 
test 
the  suitability  of 
the investment 

AML  check  must 
since 
be  done 
of 
transposition 
AMLD4 

Platforms  must 
assess 
the 
experience  and 
knowledge 
of 
its  clients  and 
verify  that  they 
can 
their 
take 
own  investment 
and 
decisions 
understand  and 
prioritise 
information 
risks.  

Platforms  must 
ensure  that  no 
promoter 
has 
simultaneously 
published  more 
than one project 
on  a  platform; 
and 
the 
that 
fundraising 
amount 
per 
project  does  not 
exceed 
€2 
million  (or  €5 
million  when 
projects 
are 
exclusively 
targeting 
accredited 
investors).  

to 

to 

Access 
platforms 
restricted 
registered 
investors  who 
have 
been 
warned  of  and 
expressly 
accepted 
risks.  

the 

Suitability test.  

to 
Platforms 
ensure 
that 
investment  is  in 
line 
with 
investor's 
experience, 
financial 
situation 
and 
risk  appetite.  In 
case 
of 
mismatch, 
to 
platform 
refuse  investor's 
subscription.  

Compliance 
money 
with 
laundering  and 
terrorism 
financing 
legislation.  

Money 
Laundering 
Regulations: 
due 
about 
customers.  

diligence 
their 

for: 

Platforms  may 
not  make  direct 
offer 
financial 
promotions 
(except 
professional 
client or eligible 
counterparty; 
high  net  worth 
client; 
retail 
certified 
sophisticated  or 
self-certified 
sophisticated 
retail  client;  a 
retail client who 
is 
taking 
regulated 
advice; 
restricted 
investor,  who 
commits  not  to 
invest 
more 
than  10%  of 
their 
net 
investable 
assets 
in 
type 
security). 

this 
of 

a 

Where 
regulated advice 
is  not  provided: 
appropriateness 
test. 

Where 
regulated advice 
is 
provided: 
suitability test. 

For 
investors: 

retail 

Appropriateness 
by 
test 
platforms 
in 
(facultative: 
alternative 
the 
appropriateness 
test  is  made  by 
banks 
or 
investment 
firms 
receive 
orders). 

which 
the 

Investors  must 
read 
the 
financial 
investor 
education 
material 
published 
Consob’s 
and 
website 
one’s 
state 
that 
awareness 
the 
entire 
investment  may 
be lost. 

on 

checks 
AML 
performed 
by 
banks  receiving 
the  orders  and 
payments.  

Checks  regarding 
the  suitability  or 
appropriateness  of 
the  investment  for 
investor 
the 
pursuant 
the 
to 
Securities  Trading 
the 
or 
Act 
Financial 
Investment 
Brokerage 
Ordinance; 
rules 
AML/CFT 
in  case  platforms 
qualify  as  obliged 
entities  under  the 
AML/CFT 
Act 
(depends  on  their 
business 
activities)  

that 

should 
Investors 
declare 
they 
understand  business 
conditions, 
including risks.  

Among  organization 
duties, 
platforms 
must  draft,  make 
available  online  and 
implement  policies 
to 
and  procedures 
money 
prevent 
laundering 
and 
terrorism financing. 

Investors 
should 
declare  that  they 
understand 
business 
conditions, 
including risks.  

Compliance  with  
money  laundering 
terrorism 
and 
financing 
legislation 

Suitability  test  for 
first-time 
engagement  with 
each product. Risk 
warnings  must  be 
issued  if  product 
is 
deemed 
unsuitable.  

80 

 
 
 
 
 
 
 
 
offer 
or 

Size 
of 
(limitations 
prospectus 
requirements) 

 Simplified 
prospectus  for 
total 
considerations 
of  more  than 
€1.5  million 
than 
less 
but 
€5 million over 
a  seven  year 
period,  and  for 
public offers of 
bonds 
or 
shares  of  at 
least  €250,000 
but  not  more 
than 
€5 
million.  3)  If 
more  than  €5 
in 
million 
capital 
has 
been  raised,  a 
prospectus 
is 
required. 

general 
rules 
to 

The 
prospectus 
apply 
crowdfunding 
a 
offers: 
is 
prospectus 
required 
for 
offers of €100,000 
or more. 

there 
a 

However, 
exists 
crowdfunding 
exemption 
offers 
€300,000, 
submitted 
to 
some  conditions 
(see below), 

for 
below 

€2  million  per 
project, 
per 
platform, 
in  a 
given  year.    €5 
the 
million, 
offer  is  limited 
to 
accredited 
investors 

if 

€2.5  million  per 
year per project 

Lower  than  €5 
million  

Lower  than  €5 
million.  

other 

from 
Exemption 
the full prospectus 
requirement 
for 
offers  of  profit-
participating 
loans, 
subordinated 
loans 
or 
investment 
products 
below 
€2.5  million.  This 
exemption  is  not 
available where an 
investment  of  the 
is  being 
issuer 
offered 
publicly 
using 
the 
of 
exemption 
Section  2  para.  1 
no.  3  of 
the 
Capital 
Investment Act. 

€1  million  per  year 
and  per  project.  €5 
million if the offer is 
to 
limited 
((i.e. 
professional 
an 
person  with 
annual 
income 
above 
€100,000)/legal 
persons only.  

Lower 
than  €5 
million  over  a  12 
month period. 

Lower 
than  €5 
million  over  a  12 
month period. 

81 

 
 
 
 
Maximum 
investable amounts 

per 

€5,000 
individual 
investor 
per 
year. This limit 
does  not  apply 
legal 
(i) 
to: 
persons, 
(ii) 
professional 
investors.  
Exceptionally, 
individual 
can 
investors 
invest  more 
than 
€5,000, 
but  no  more 
than  either  the 
double  of  their 
monthly 
net 
income or 10% 
of 
their 
financial 
assets. 

In  case  the  issuer 
wants  to  benefit 
from 
the 
crowdfunding 
for 
exemption 
below 
offers 
€300.000, 
the 
individual  amount 
that each investor 
can 
is 
invest 
limited to €5,000. 

Non  -accredited 
investors: 
€3,000 
project 
maximum 
€10,000 a year. 

per 
and 

no 

Accredited 
investors: 
limit. 
Accredited 
investors  are  (i) 
Institutional 
investors; 
(ii) 
Companies  with 
€1  million  of 
assets, 
€2 
of 
million 
annual  turnover 
or  €300,000  of 
equity; 
(iii) 
Individuals with 
of 
€50,000 
annual 
income 
or €100,000   of 
financial assets. 

hard 

No 
investment 
limit.  

Retail  investors 
who do not take 
advice,  are  not 
high  net  worth 
and 
not 
are 
sophisticated:  
not 
invest 
to 
more  than  10% 
net 
their 
of 
investable 
assets. 

No 
restriction 
with  regard  to 
of 
the 
type 
the 
investors, 
of 
number 
investors, 
or 
maximum 
investment 
limits. 

No limit. 

the 

Exemption from 
appropriateness 
test 
for 
investments 
under 
following 
(i) 
thresholds: 
Natural persons:  
€500 
per 
individual  order 
in 
and  €1,000 
total 
annual 
orders; 
(ii) 
Legal  persons: 
€5,000 
per 
individual  order 
and  €10,000  in 
total 
annual 
orders.  

Based  on  self-
declaration  by 
investors. 

If  the  investor  has 
freely 
available 
assets  of  at  least 
to 
€100,000:  up 
an 
€10,000 
issue.  

in 

the 

not 

investor 
If 
have 
does 
freely 
available 
assets  of  at  least 
€100,000: 
twice 
investor's 
the 
monthly 
income, 
but in any case not 
more 
than 
€10,000 

€3,000 
per 
project and a total of 
€10,000  per  year. 
This  limit  does  not 
apply  to:  (i)  legal 
(ii) 
persons 
professional 
investors. 

and 

Mandatory 
appropriateness 
tests 
for 
investments above 
€2,000. 

limit 

No 
appropriateness 
test 
warning. 

and 

– 

risk 

In  all  other  cases 
(particularly  if  the 
investor  does  not 
a 
provide 
on 
statement 
assets 
and 
income): €1,000  

No 
for 
limits 
corporate entities. 

82 

 
 
 
 
 
Disclosure 
investors  by 
issuer  

to 
the 

must 

For 
total 
considerations 
least 
of 
at 
but 
€100,00 
less  than  €1.5 
million, 
or 
offers of bonds 
and  shares  of 
more 
than 
€100,000  but 
less 
than 
€250,000: 
Issuer 
provide 
information  on 
issuer, 
alternative 
financial 
instruments 
risks, 
and 
annual  report, 
opening 
balance 
sheet 
business  plan, 
terms 
and 
conditions 
(information 
investment 
sheet). 

usual 

The 
disclosure 
requirements  are 
imposed  on  the 
platform. 

a 
In 
case 
prospectus 
is 
issued,  the  issuer 
must  disclose  the 
usual  prospectus 
information. 

In  case  the  issuer 
wants  to  benefit 
the 
from 
crowdfunding 
for 
exemption 
offers 
below 
€300.000,  it  must 
an 
provide 
information 
document  about 
the 
offer 
(amount,  type  of 
investment 
instruments, 
reasons 
the 
for 
offer),  that  is  not 
ex-ante  approved 
by the FSMA 

risk 
are 

disclosure 

All 
requirements 
and 
warnings 
directly 
imposed  on  the 
platforms. 
Complete,  clear 
and 
detailed 
project 
description. 
Information 
the 
about 
and 
promoter 
the 
securities. 
Project owner is 
liable 
to 
investors for the 
information 
provided. 

to 

Mandatory 
document  with 
information 
provided  by  the 
issuer  and 
the 
platform  (AMF 
template): 
procedures 
for 
transmission  of 
subscription 
orders 
the 
issuer; details of 
fees  charged  to 
the  investor  and 
indication that it 
to 
is  possible 
a 
request 
description 
of 
the 
services 
provided  to  the 
issuer  and 
the 
associated 
costs; 
of 
description 
the 
specific 
risks  linked  to 
the business and 
to 
the  project 
owner. 

to: 

Firms 
disclose 
sufficient 
information in a 
fair,  clear  and 
not  misleading 
manner; provide 
appropriate 
information 
about 
designated 
investments  so 
that the client is 
reasonably  able 
understand 
to 
the  nature  and 
risks and to take 
investment 
decisions  on  an 
informed basis. 

Issuers 
encouraging 
in 
investment 
own 
their 
are 
securities 
prohibited 
to 
communicating 
financial 
promotions 
in 
the  course  of 
business,  unless 
authorised 
an 
has 
person 
approved 
the 
promotion or an 
exemption 
exists 
secondary 
legislation.  

in 

Publication  of 
information  (in 
a  short,  correct 
and  clear  way, 
using 
the 
Consob 
standard form). 

the 
All 
information 
is 
provided  by  the 
offeror 
under 
own 
responsibility 
and  there  is  no 
requirement  of 
prior 
approval 
by Consob.  

Offerors 
allowed  to  use 
other 
communication 
tools  such  as 
films, 
interviews, 
slides, pitches. 

If no prospectus is 
required: 
Issuer 
must  prepare  an 
investment 
information  sheet 
(VIB)  and  submit 
it  to  BaFin.  VIB 
present 
must: 
essential 
information  about 
the 
investment; 
contain  a  notice 
that  there  is  no 
prospectus 
approved 
by 
BaFin;  contain  a 
notice  that  further 
information  may 
be  requested  from 
offeror  or  issuer; 
warn  about 
the 
risks. 
Investors 
must  confirm  that 
taken 
they  have 
note  (signature  or 
equivalent).  Civil 
liability  of  offeror 
is 
if 
VIB 
misleading 
or 
inaccurate. 

Issuer 
must 
comply  with  rules 
on  marketing  of 
investments 
(warning of risks). 

Issuer  must  prepare 
a  document  called 
information 
"Key 
in 
for 
crowdfunding 
investment" 

investors 

The  following  has 
to  be  disclosed: 
information on the 
company,  on  the 
investment project 
and 
the 
investment 
instrument. 
Timely  disclosure 
of 
and 
true 
sufficient 
information 
factors 
its' 
value 
repayment 
capability. 

on 
affecting 
and 

The 
following 
information has to 
be 
disclosed: 
project  &  project 
owner 
characteristics, 
proportion  of  own 
funds used, details 
of 
the  offering, 
security  measures, 
existence 
of 
secondary 
markets. 

Information 
document needs to 
be  prepared  when 
is 
amount 
the 
between  €100,000 
and €5 million. At 
least  10%  of  the 
project  has  to  be 
financed 
using 
own-funds. 

83 

 
Information 
requirements 
& 
risk  warnings  by 
platforms 

issuer 

type, 
and 
of 

Information  on 
the 
platform 
operator. 
Information 
about 
selection 
requirements. 
Information 
about 
amount 
frequency 
collected 
payments. 
to 
Platform 
inform 
about 
risk of loss and 
that 
investors 
should 
preferably 
invest 
assets 
which  will  not 
in 
be  needed 
cash 
the 
near future.  

in 

the 
itself 

Information 
about: 
platform 
(identity, 
licence,…),  costs, 
of 
conflicts 
interest 
policy, 
due  diligence  (if 
applicable), 
nature  and  risks 
investment 
of 
instruments 

to 

Warnings 
on: 
risks  entailed  in 
investing  in  the 
projects 
published by the 
platforms; 
are 
platforms 
not 
investment 
firms  or  credit 
institutions; 
projects  are  not 
subject 
the 
authorisation 
and supervision, 
information 
provided 
by 
promoters  has 
been 
not 
reviewed 
by 
supervisor  and 
not 
does 
constitute 
an 
approved 
prospectus. 
Requirements 
investor's 
on 
information  and 
representations 
prior 
investment.  

the 

to 

Platforms  must 
have 
a 
restricted-access 
website with the 
following 
characteristics: 
access to details 
the  offers 
of 
reserved 
to 
potential 
investors  who 
have 
given 
personal  details, 
the  risks 
read 
expressly 
and 
them; 
accepted 
website 
shall 
propose  several 
The 
projects; 
projects 
shall 
been 
have 
selected  on  the 
basis  of  criteria 
and 
in 
accordance  with 
a procedure that 
have 
been 
predefined  and 
published on the 
website. 

Requirement 
not  to  disguise, 
diminish 
or 
obscure 
important items, 
statements 
or 
warnings.  

Information 
about:  activities 
performed; 
investors’  fees; 
taxation 
benefits; 
general 
related 
crowdfunding 
investments 

risks 
to 

For  each  offer, 
information  on: 
risks; issuer and 
the 
financial 
instruments 
the 
offered; 
offer; 
services 
offered  by  the 
platform 
in 
relation  to  the 
offer.  

platform 

If 
provided 
investment 
advice: 
must 
provide  the  VIB 
(see 
to 
above) 
potential  investor 
in good time prior 
to  purchase  of  the 
investment. 

Detailed information 
on 
available 
"key 
products 
for 
information 
investors 
in 
crowdfunding", 
information  on  the 
platform  itself,  and 
ongoing  information 
on 
funded 
entities and projects.    

the 

Basic  information 
document 
on 
risks, 
crowdfunding 
recipients, 
investment 
instrument 
offering, 
guarantor 
collateral, 
information. 

and 
other 

and 

selection 

Information on the 
itself, 
platform 
risks 
investment 
associated  with 
crowdfunding, 
project 
criteria, 
crowdfunding 
information 
booklet 
taxes, 
procedures). 
Monthly 
yearly 
updates. 

and 
progress 

(fees, 

84 

 
 
Due diligence 

No 
requirement 
but 
platform 
must  check  the 
completeness, 
comprehensibil
ity 
and 
consistency  of 
issuer's 
information. 

is 

no 
There 
obligation 
to 
conduct  a  due 
of 
diligence 
projects, 
but 
platforms  must 
investors 
inform 
whether 
is 
this 
the case or not. If 
is  a  due 
there 
the 
diligence, 
must 
platform 
inform 
clients 
about  criteria  and 
procedures  used 
for  the  selection 
of projects. 

Platform 
shall 
verify  that  the 
information 
about 
the 
project  required 
under the law to 
be  disclosed  to 
investors 
is 
complete.  

Platforms  must 
due 
perform 
in 
diligence 
selecting 
the 
and 
projects 
disclose the pre-
determined 
criteria  used  in 
selection 
the 
Issuer 
process. 
responsible 
is 
for 
the 
completeness, 
accuracy 
and 
balanced  nature 
of 
the 
information 
provided,  while 
platform 
the 
that 
monitors 
issuer 
the 
provides 
consistent 
clear 
information. 

and 

No 
obligation 
on  what  due 
diligence 
procedures must 
followed. 
be 
must 
Firms 
disclose 
the 
nature  of  their 
and 
service 
appropriate 
information 
about it. 

Platforms  must 
provide  detailed 
information  on 
strategies 
for 
the  selection  of 
the  offers  to  be 
presented on the 
platform. 

N/A 

N/A 

N/A 

shall 
Platform 
conduct 
project 
due  diligence  as 
well  as  publicly 
display 
the 
applicable criteria. 

85 

 
 
 
Conflict of interest 

Operator 
cannot issue on 
own  platform. 
Operator 
to 
allowed 
invest  through 
own  platform 
but  only  to  a 
small 
very 
extent 
to 
facilitate 
information 
flows  between 
issuers 
and 
investors. 

All 
reasonable 
steps  must  be 
to  avoid 
taken 
of 
conflicts 
interests. 
a 
conflict  cannot  be 
avoided, 
it  must 
be  identified  and 
managed. 

If 

is  no 
If 
there 
guarantee 
that 
there  won’t  be 
consumer 
any 
detriment, 
consumers  must 
be 
informed  of 
the sources of the 
of 
conflict 
interest. 

Platforms 
required 
to 
disclose  any  fees, 
payments 
or 
other  monetary 
benefits  that  they 
receive,  and  must 
disclose the policy 
regarding 
conflicts 
interest. 

of 

Platform 
to 
publish  a  policy 
on  conflict  of 
interests; 
Platform's 
directors, 
managers, 
employees 
to 
avoid conflict of 
interests;  
Platform,  
directors, 
managers 
significant 
shareholders 
can  invest  in  a 
project 
(max. 
10%)  and  can 
act  as  an  issuer 
(max.  10%  of 
raised 
funds 
through 
the 
platform)  

and 

Platforms 
are 
subject  to  rules 
relating  to  the 
management  of 
conflicts 
of 
interest 
(General 
Regulation 
AMF). 

of 

to 

Platforms 
identify 
possible 
of 
conflicts 
interest 
that 
may  entail  a 
material  risk  of 
damage  to  the 
to 
interests, 
keep a record of 
possible 
these 
and 
conflicts 
take 
all 
reasonable steps 
the 
avoid 
to 
conflict  leading 
to 
for 
loss 
clients.  Where 
the  risk  cannot 
be  managed,  it 
be 
should 
disclosed 
to 
clients.  

Platforms  must 
follow  specific 
rules of conduct 
but 
similar 
lighter 
than 
ones  provided 
for 
investment 
firms. 

and 

Platforms  must 
work 
with 
diligence, 
fairness 
transparency, 
any 
avoiding 
conflicts 
of 
interest  which 
could  arise 
in 
the management 
of  the  platform 
that  may  affect 
the  interests  of 
the 
investors 
and  the  issuers, 
and 
ensuring 
equal  treatment 
of 
the 
beneficiaries  of 
the  offers  who 
are  in  identical 
conditions. 

Platforms required 
to  disclose  any 
fees,  payments  or 
other  monetary 
benefits  that  they 
receive  from  third 
parties  other  than 
the 
in 
investors 
connection  with 
services 
the 
provided 

to 

Platforms 
be 
organised  to  avoid 
conflict  of  interests; 
Platforms  '  officers 
and 
employees 
cannot have interests 
opposed  to  those  of 
investors.  Platform 
cannot  offer  advice 
projects 
on 
published 
its 
on 
website. 

Crowdfunding 
intermediaries 
must  act  honestly, 
fairly, 
professionally  and 
in  the  interest  of 
consumers. 
Financial 
instruments 
or 
cash  belonging  to 
customers must be 
recorded  and  kept 
separately. 

the 

Platforms  must 
fee 
disclose 
for 
structures 
investors 
and 
project  owners  as 
well  as  provide 
applicable 
tax 
information.  

86 

 
 
 
 
Professional 
requirements 

on 

Depends 
the 
authorisation 
(either 
business 
investment 
consulting  or 
Investment 
Services 
Undertaking) 

and 

Platforms 
managers 
administrators 
must 
provide 
evidence  of  the 
required  level  of 
professional skills 

Recognised 
knowledge, 
experience  and 
professional 
repute 
directors 
managers 

of 
and 

or 

Platforms 
managers 
administrators 
must 
provide 
evidence  of  the 
required level of 
professional 
skills 
(requirements 
examined 
by 
AMF)  prior  to 
platforms 
the 
registration. 
Appropriate 
professional 
skills  and  good 
repute 
requirements  of 
crowdfunding 
investment 
advisers. 

FCA 
threshold 
conditions  (e.g. 
appropriate 
resources; 
employ  people 
are 
who 
competent, 
fit 
and  proper  for 
role; 
their 
suitable 
business 
model).  

Employees 
controlling 
the 
business  must 
honesty, 
have 
integrity 
and 
good reputation; 
be 
must 
financially 
sound  and  have 
appropriate 
competence  and 
for 
capability 
their role. 

Integrity 
requirements 
for 
controlling 
shareholders.  

the 

and 

Integrity 
professional 
requirements 
for  the  persons 
who 
perform 
managerial  and 
supervisory 
functions. 

Reliability, 
expertise 
shown 
by  passing  exam 
conducted  by  the 
of 
Chamber 
Industry 
and 
Commerce.  

should 
Platform 
necessary 
have 
technical, 
human, 
material 
and 
financial  resources. 
of 
Assessment 
platforms' 
officers 
by CMVM   

Familiarity  with 
the  operations  of 
financial  markets 
for  the  board  as  a 
whole.  Reliability 
requirement 
for 
platform 
operators, 
members 
significant 
stakeholders. 

board 
and 

by 

Must comply with 
good 
crowdfunding 
practice 
belonging 
or 
(directly 
indirectly) 
to  an 
independent  body 
established  in  the 
EEA 
that 
represents  a  wide 
range  of  industry 
stakeholders  and 
following 
their 
code of conduct. 

Criminal 
record 
check for platform 
board 
operators, 
and 
members 
significant 
stakeholders. 

87 

 
Overview of domestic regulatory frameworks on lending-based crowdfunding 

Spain 

Bespoke regime 

Yes 

France 

Yes 

UK 

Yes 

Portugal 

Yes 

Entry into force 

29 April 2015 

1 October 2014 

1 April 2014 

Q1 2016 (expected) 

if 

Consumer-to-
Consumer;  Business 
consumer; 
to 
Consumer-to 
–
Business;    Business-
the 
to-business 
borrower  is  a  sole 
trader 
a 
partnership 
consisting  of  two  or 
three  persons  or  an 
unincorporated  body 
of  persons  and  the 
loan amount does not 
exceed £25,000. 

or 

Consumer-to-
businesses; 
Businesses-to-
business. Funds must 
be 
for 
collected 
funding  entities  or 
their  projects  and 
activities.  

Authorisation 
by 
FCA.  Platforms  may 
also 
other 
need 
permissions, 
depending  upon  the 
they 
activities 
undertake 

The  same  applies  as 
for  investment-based 
crowdfunding 

Scope  of  lenders 
and  borrowers 
(Consumers-to-
Consumers, 
Consumer-to-
Business, 
business-to-
consumers, 
business-to-
business) 

Consumer-to- 
Business;  Business-
to 
Business; 
consumer-to-
consumer. Loans can 
be  solicited  for  a 
business,  education 
or consumer project. 

Consumers-to- 
Businesses; 
Business-to-
business;  Consumer-
to-consumer  (only  if 
loan  application  for 
educational project) 

Authorisation 

and 
Authorisation 
with 
registration 
after 
CNMV 
mandatory 
and 
binding opinion from 
Bank of Spain. 

the 

and 
duty 
professional 

Registration 
with 
ORIAS  (association 
in  charge  of  a  single 
register  of 
finance 
intermediaries).  The 
ORIAS  has  to  check 
if 
platform 
responds  to  the  legal 
requirement 
(knowledge 
competence, 
and 
indemnity 
insurance).  Checks 
are  carried  out  on  a 
basis. 
declarative 
Platforms 
regulated 
by  the  ACPR  and 
supervised  by 
the 
for 
DGCCRF 
consumer  protection 
purposes. No ex-ante 
authorisation 
required. 

88 

 
 
 
 
Money handling 

Minimum 
capital 
requirements 

Type of loans 

Spain 

France 

UK 

Portugal 

and 

funds 

Platforms might only 
on 
receive 
behalf of investors or 
borrowers  if  they  do 
have  the  purpose  of 
payment 
the 
platform  has  been 
an 
granted 
as 
authorization 
payment 
hybrid 
institution. 
They 
segregate 
should 
their  own  funds  and 
their  clients’  funds 
into 
separate 
accounts. 

may 
Platforms 
provide 
payment 
services  and,  when 
so,  must 
doing 
the  specific 
follow 
to 
rules 
applying 
their  other 
status 
allowing  for  such  a 
service 
(credit 
institution,  payment 
institution,  electronic 
money institution…) 

they 

firms 

Where 
are 
responsible for client 
money, 
are 
subject to rules in the 
FCA  Client  Assets 
Sourcebook  (CASS), 
especially  the  client 
money  rules  (CASS 
ensure 
7),  which 
adequate  protection 
of client money. 

The  same  applies  as 
for  investment-based 
crowdfunding. 

or 

or 

funds 

(share 
€60,000 
capital), 
a 
professional  liability 
insurance 
a 
combination  of  both. 
that  are 
If 
raised 
exceed  €2 
million,  equity  will 
amount  to  €120,000 
in 
(and 
proportion 
the 
funds  raised,  up  to 
€2 million). 

increased 
to 

loans 

by 
on 

Fixed or variable rate 
profit 
loan; 
loans; 
participating 
and 
senior 
loans; 
subordinated 
and 
unsecured 
(but 
secured 
projects  shall  not  be 
a 
secured 
the 
mortgage 
borrower´s 
main 
residence. 
Furthermore, 
promotors 
that 
qualify as consumers 
according 
the 
consumer 
general 
protection  laws  may 
not 
a 
for 
apply 
mortgage-backed 
loan). 

to 

None  (but  have  to 
take 
professional 
indemnity 
insurance). 

or 

€50,000 
a 
percentage  of  loaned 
funds  –  whichever  is 
higher 

The  same  applies  as 
for  investment-based 
crowdfunding. 

Loan  cannot  exceed 
1  M€,  with  a  fixed 
rate  and  a  maximum 
duration  of  7  years. 
Only  natural  persons 
are  allowed  to  lend 
on  an  IFP  platform, 
a  maximal 
with 
amount  of  1,000  € 
per project.  

All  types  of  loans, 
including 
secured 
and  unsecured  loans, 
loans  to  businesses 
and 
to 
loans 
consumers.  

Loans  whereby  the 
is 
interest 
rate 
determined  on 
the 
subscription. 

89 

 
 
 
Spain 

France 

UK 

Portugal 

Business 
continuity 
requirements 

Platforms  must  have 
effective 
mechanisms  in  place 
that  ensure  that,  in 
the 
of 
event 
cessation  of  activity, 
essential  services  are 
provided 
those 
had 
projects 
successfully obtained 
funding. 

to 
that 

IFP  must  define  and 
any 
organize 
to 
arrangements 
ensure 
business 
continuity,  including 
in  the  event  of  the 
the 
failure 
platform. 

of 

rules 
KYC 
or 
(suitability 
appropriateness; 
AML checks) 

Platforms 
must 
assess the experience 
and knowledge of its 
clients  and  verify 
that  they  can  take 
their own investment 
and 
decisions 
understand 
and 
prioritize 
information risks. 

Platforms  are  also 
to 
subject 
anti-
money 
laundering 
Neither 
rules. 
appropriateness  nor 
suitability 
is 
foreseen.   

test 

draft, 

Platform's 
organisational  duty 
publish 
to 
online  and  enforce 
policies 
and 
procedures  in  order 
to  ensure  business 
continuity. 

The  same  applies  as 
for  investment-based 
crowdfunding. 

in 

place 

Continuity 
arrangements need to 
so 
be 
existing loans can be 
administered  even  in 
the  event  of  a  firm 
running  a  platform 
failing. 

As  of  6  April  2016: 
firms 
providing 
personal 
recommendations  to 
invest 
P2P 
in 
agreements  will  be 
providing a regulated 
activity). 

No  appropriateness 
test 
lending-
based crowdfunding 

for 

Platforms 
must 
establish,  implement 
maintain 
and 
adequate policies and 
procedures  sufficient 
to ensure compliance 
of  the  firm  including 
managers, 
it 
employees 
and 
appointed 
(or 
representatives 
where 
applicable, 
tied  agents)  with  its 
obligations under the 
regulatory 
system 
and  for  countering 
the  risk  that  the  firm 
to 
might  be  used 
further 
financial 
crime. 

Size of loans 

€2  million 
per 
project, per platform, 
in  a  given  year.    €5 
million, if the offer is 
limited  to  accredited 
investors 

€1  million  per  year 
per  project  (duration 
up to 7 years). 

No maximum 

The  same  applies  as 
for  investment-based 
crowdfunding. 

90 

 
 
Spain 

France 

UK 

Portugal 

Maximum 
investable 
amounts 

Non 
-accredited 
investors:  €3,000  per 
project  and  €10,000 
max a year. 

are 

Accredited  investors: 
no  limit.  Accredited 
investors 
(i) 
Institutional 
investors; 
(ii) 
Companies  with  €1 
million  of  assets,  €2 
million  of  annual 
turnover or €300,000 
of 
(iii) 
equity; 
with 
Individuals 
€50,000  of  annual 
income  or  €100,000   
of financial assets. 

Lender  can  finance 
up 
to  €2,000  per 
project if financing is 
in the form of a loan 
with  interest  and  up 
to  €5,000  per  project 
for  an  interest  free 
loan. 

No maximum 

The  same  applies  as 
for  investment-based 
crowdfunding.  

Where  creditor  does 
not lend in the course 
and 
of 
business 
borrowers 
are 
consumers:  platform 
provide 
must 
adequate 
pre-
contractual 
the 
explanation 
In 
borrower. 
all 
addition, 
communications  by 
the  platform  must 
FCA 
meet 
requirements 
to  be 
clear,  fair  and  not 
misleading. 

to 

The  same  applies  as 
for  investment-based 
crowdfunding. 

Disclosure 
investors 
borrower 

to 
by 

Description 
project 
funding 
borrowers’ 
features.  

of 
seeking 
and 
main 

Disclosure 
requirements 
imposed 
platform. 

on 

the 

the 

Where 
the  creditor 
lends in the course of 
full 
business 
protections  required 
by 
Credit 
Consumer  Act  and 
FCA rules apply.  

the 

91 

 
 
 
 
 
  
 
 
Spain 

France 

UK 

Portugal 

Information 
requirements  & 
risk  warnings  by 
platforms 

the 
Information  on 
platform 
itself, 
(especially  on  how 
the 
are 
projects 
selected)  and  on  the 
loan. 
General 
warnings  on  risks  to 
non-accredited 
investors.  

lender 
the 
Warn 
about  the  risks    an 
provide 
lenders: 
to 
with  tools  to  assess 
loan 
the  possible 
can 
they 
amount 
their 
afford  given 
and 
income 
the 
expenses; 
elements 
relevant 
to 
them 
enabling 
assess  the  economic 
viability 
the 
project,  in  particular 
the business plan. 

of 

the 
Information  on 
and 
platform 
its 
including: 
services, 
a 
contact  details, 
that 
statement 
the 
is  authorised, 
firm 
details 
of  what 
performance  reports 
the client can expect, 
and 
firm’s 
the 
conflicts  of  interest 
policy. 

General  description 
of 
the  nature  and 
risks of a product, in 
sufficient  detail  so 
the  client  can  take 
investment  decisions 
on an informed basis. 

The  same  applies  as 
for  investment-based 
crowdfunding. 

Platform must send a 
least 
statement  at 
once  a  year  of  the 
investments 
and 
client money held by 
the 
the 
client. 

firm 

for 

Due diligence 

Platform  shall  verify 
that  the  information 
about 
the  project 
the 
required  under 
law  to  be  disclosed 
to 
is 
investors 
complete.  

must 
Platforms 
perform 
due 
diligence in selecting 
and 
projects 
the 
pre-
disclose 
the 
determined 
criteria 
used  in  the  selection 
process. 

No  obligation  on 
what  due  diligence 
procedures  must  be 
followed.  

must 
Platforms 
disclose the nature of 
their 
and 
service 
appropriate 
information  about  it. 
sufficient 
Disclose 
information 
about 
the  nature  of  service 
so 
investors 
understand  what  due 
is 
diligence 
undertaken  and  the 
conduct 
need 
to 
due 
additional 
their 
diligence  of 
before 
own 
investing. 

N/A 

92 

 
 
 
Spain 

France 

UK 

Portugal 

Conflict 
interest 

of 

Platform to publish a 
policy  on  conflict  of 
interests;  Platform's 
directors,  managers, 
employees  to  avoid 
conflict  of  interests; 
of 
Shareholders 
cannot 
platforms 
provide  advice  on 
projects.  Platform,  , 
directors,  managers 
significant 
and 
can 
shareholders 
invest  in  a  project 
(max.  10%)  and  can 
act as an issuer (max. 
10% of funds  raised 
through the platform)  

- 

Professional 
requirements 

Recognised 
knowledge, 
experience 
professional 
of 
managers 

directors 

and 
repute 
and 

repute 

Good 
professional 
qualifications 
experience. 

and 

/ 

to 

Platforms  to  identify 
possible  conflicts  of 
interest 
that  may 
entail  a  material  risk 
of  damage 
the 
interests,  to  keep  a 
record 
these 
of 
possible 
conflicts 
all 
take 
and 
reasonable  steps  to 
avoid 
the  conflict 
leading  to  loss  for 
clients.  Where 
the 
be 
cannot 
risk 
managed,  it  should 
be 
to 
disclosed 
clients. 

Platforms 
to  have 
appropriate resources 
employ  people  who 
fit 
are  competent, 
and  proper  for  their 
role,  and  to  have  a 
business 
suitable 
model. 
The 
employees 
controlling 
the 
business  must  have 
honesty, 
integrity 
and  good  reputation. 
be 
They 
financially sound and 
appropriate 
have 
and 
competence 
their 
capability  for 
role. 

must 

The  same  applies  as 
for  investment-based 
crowdfunding. 

The  same  applies  as 
for  investment-based 
crowdfunding. 

93 

 
 
 
7.1  Overview of the legislative framework  

Crowdfunding comprises a range of different operational structures and business models are evolving. The activities 
of  crowdfunding  platforms  can  thus  be  subject  to  different  pieces  of  EU  legislation  or  only  subject  to  national 
legislation.  Member  States  and  NCAs  have  been  working  out  how  to  treat  crowdfunding,  with  some  dealing  with 
issues case-by-case, some seeking to clarify how crowdfunding fits into existing rules and others introducing specific 
requirements.112  Although  some  regimes  address  both  investment-based  and  lending-based  crowdfunding,  some 
Member States have adopted a regime for investment-based crowdfunding and a separate regime for lending-based 
crowdfunding.  The  overview  is  organised  in  four  sections:  (i)  authorisation;  (ii)  organisational  requirements;  (iii) 
conduct of business rules and; (iv) transparency.  

There are bespoke regulatory frameworks in eleven EU Member States for equity-based crowdfunding and in four 
Member States lending-based crowdfunding. 

7.1.1  Authorisation 

Conditions  and  procedures  for  authorisation,  in  particular  for  those  who  direct  and/or  own  the  business  mitigate 
operational  risk,  counterparty  risk,  money  laundering  and  the  risk  of  fraud.  Moreover,  initial  capital  endowment 
reinforces the mitigation of operational risk, counterparty risk, and risk of fraud. These measures aim to mitigate the 
risks for platforms as well as those facing investors and fund seekers.  

Investment-based crowdfunding 
There are four broad models of authorisation of investment-based crowdfunding platforms in EU Member States: (i) 
authorisation  under  the  national  laws  implementing  the  Markets  in  Financial  Instruments  Directive  (MiFID);  (ii) 
domestic bespoke regime under MiFID Article 3 exemption; (iii) authorisation for services and activities in relation to 
non-MiFID financial instruments; and (iv) authorisation outside the MiFID framework. 

Some of these authorisation models are not mutually exclusive and in practice they are combined in certain Member 
States. For example, in one Member State platforms can be authorised either under model (i) or model (ii), at the 
firm's discretion. In another Member State, platforms can be authorised both under model (i) and model (iii). 

Some  Member  States  impose  specific  capital  requirements  for  investment-based  crowdfunding  activities  in  their 
bespoke  regimes.  Typically  the  levels  of  the  capital  requirements  are  calibrated  to  the  services  provided  by  the 
platforms and the activities they carry on. In some cases there are no capital requirements or capital requirements 
start at relatively low levels and they may also be replaced by qualified indemnity insurance. In one Member State, 
the capital requirements increase proportionally with the financing sum. 

Lending-based crowdfunding 
Proper  credit  risk  management  and  money  handling  are  specific  to  lending-based  crowdfunding.  Both  credit  risk 
management and money handling are vital for the viability of the platform in a longer run and for the protection of 
lenders and borrowers. 

They  range  from  licensing  requirements  specific  to  crowdfunding  activity  under  bespoke  regimes  to  general  trade 
licenses  needed  on  national  level  in  order  to  operate  on  the  market  and  to  provide  consumer  credit  or  credit 
brokerage services. There are also instances when platforms operate under a payment institution license under the 
Payment Services Directive. 

112 ESMA Advice - Investment-based crowdfunding 18 December 2014 | ESMA/2014/1560 

94 

 
 
                                                            
All Member States with bespoke regimes, with one exception, impose or plan to apply capital requirements. Some 
bespoke  regimes  also  require  platforms  to  have  arrangements  in  place  to  ensure  that  loans  continue  to  be 
administered  if  a  platform goes  out of business  and  impose on  platforms  the organisational duty to  draft,  publish 
online  and  enforce  policies  and  procedures  in  order  to  ensure  business  continuity.  The  standards  of  professional 
qualification and conduct rules vary by Member States. 

7.1.2  Organisational requirements 

Organisational  requirements  on  client  asset  rules  and  record-keeping  requirements  aim  to  mitigate  money 
laundering, operational risk, counterparty risk and risk of fraud. Organisational requirements on conflicts of interest 
help to alleviate legal risk. These measures aim to mitigate risks for platforms as well as those facing investors and 
fund seekers. 

Investment-based crowdfunding 
Rules  on platform’s  organisational arrangements  are a  common  feature  of  several domestic bespoke regimes.  For 
example, platforms managers may be required to show good repute, professionalism and competence. They need to 
be able to ensure that investors understand the features and risks of the investments. 

Some  domestic  bespoke  regimes  also  directly  address  the  issue  of  conflicts  of  interest.  These  range  from 
requirements that platforms identify and manage sources of potential conflicts of interest and disclose conflict-of-
interest management policy to users, to limitations or outright prohibitions on the extent to which platforms can act 
as  fund  seekers  or  investors.  Some  Member  States  extend  the  conflict  of  interest  rules  to  platforms'  directors  or 
employees. 

For platforms not covered by MiFID and the PSD, Member States generally impose rules compliance with legislation 
on anti-money laundering and terrorist financing in their domestic bespoke regimes. 

Lending-based crowdfunding 
Approaches to regulating the lending activity vary depending on the business models and by Member State. Rules of 
different nature apply if lenders and/or borrowers fall into specific categories defined by national laws. These rules 
distinguish between retail and institutional or professional investors, advised clients, sophisticated retail or high net 
worth  clients,  non-accredited  and  accredited  investors.  For  example,  with  the  likely  aim  to  ensure  responsible 
lending,  platforms  are  obliged  to  give  risk  warnings  to  consumers,  rather  than  being  explicitly  required  to  assess 
their creditworthiness.  

7.1.3  Conduct of business rules 

Conduct of business obligations on appropriateness test, suitability test and reporting to clients can mitigate lack of 
transparency/misleading information. Reporting to clients mitigates not only the risk that costs, risks and returns are 
unclear, but also mitigates risk of fraud, operational risk, and legal risk. For platforms, reporting to clients mitigates 
the reputational risk coming from legal risk. 

Investor/Lender 
Some  domestic  bespoke  regimes  have  rules  to  ensure  that  investment  offerings  through  crowdfunding  platforms 
reach  investors  for  whom  they  are  suitable  or  appropriate.  In  one  Member  State,  platforms  must  ensure  that 
investments are in line with the investor's experience, financial situation and risk appetite. In another Member State, 
platforms  must  ensure  that  investors  have  examined  investor  education  information  provided  by  the  regulator; 
responded positively to a questionnaire on investment features and risks; and are able to economically sustain the 
complete loss of the investment. 

95 

 
 
Limiting investment amounts is one feature of the general approach to protect investors that is common to several 
domestic bespoke regimes. These limitations take different forms and range from fixed maximum ceilings to variable 
shares of personal income, wealth or financial assets. These ceilings can be calculated per each offering or on the 
basis of total investment in a given timeframe (for example one year). Typically the ceilings vary on the basis of the 
categorisation  of  investors  (e.g.  retail,  sophisticated  and  professional  investors;  accredited  and  non-accredited 
investors; natural and legal persons).  

In  one  Member  State  there  are  no  upper  limits  on  the  investment  in  securities  through  regulated  crowdfunding 
platforms,  while  in  another  Member  State  investors  can  only  invest  through  crowdfunding  platforms  if  they  meet 
certain criteria. Typically, these limitations (on aggregated limits) are implemented through self-declaration by the 
investors themselves. 

Platforms 
Some domestic bespoke regimes have requirements related to a platform's role regarding the offering and the need 
to conduct some due diligence on the offerings in terms of mandatory review, disclosure and reporting. Platforms 
may also be required to disclose the pre-determined criteria used in selecting the projects. 

Both  EU  rules  and  bespoke  regimes  set  out  investor  protection  measures  such  as:  "know  your  customer  rules"; 
disclosure by  fund  seekers  (in  cases  of  exemption  from the Prospectus  Directive); risk  warnings  by  platforms;  due 
diligence requirements; limits on maximum investable amounts.  

National  legislation  implementing  the  Unfair  Commercial  Practices  Directive  provides  general  obligations  for  the 
conduct  of  business  and  requires  traders  to  act  in  accordance  with  the  requirements  of  professional  diligence  in 
relations with consumers. 

Fund seeker/Borrower 
Bespoke  regimes  on  crowdfunding  in  some  Member  States  were  developed  as  exceptions  to  the  domestic 
prospectus regime, notably in cases where Member States extend the obligation to publish a prospectus to financial 
instruments that are not in the scope of the PD (e.g. profit-participating loans or subordinated loans). 

For  those  Member  States  that  have  specific  exemptions  from  the  obligation  to  publish  a  prospectus  for  offers 
through  crowdfunding  platforms,  the  thresholds  under  which  the  exemptions  become  applicable  varies  from  EUR 
300 000 to EUR 5 000 000. In addition, some Member States have different thresholds depending on the categories 
of investors targeted by the offers. 

7.1.4  Transparency 

Requirements  on  transparency,  if  well-designed,  mitigate  risk  on  lack  of  transparency/misleading  information. 
Information requirements mitigate not only the risk that costs are unclear but also improve the understanding of the 
risk/return profile. Information requirements also reduce the legal risk. 

Platforms need to be able to ensure that investors understand the features and risks of the investments (e.g. sources 
of  funds,  scope  of  the  funding  and  its  purpose).  Domestic  bespoke  regimes  generally  set  out  specific  disclosure 
requirements,  such  as  mandatory  documents  containing  some  key  information  about  the  fund  seeker,  the 
investment  or  the  project  for  which  funding  is  sought  (including  potential  risks).  There  may  be  a  requirement  to 
submit the information document to the supervisor, although the document itself is not necessarily approved by the 
supervisor.  Depending  on  the  Member  State  the  information  document  may  or  may  not  be  required  to  follow  a 
template. 

96 

 
 
Several domestic bespoke regimes have specific requirements on the information that platforms have to provide in a 
standardised  form,  notably  in  regard  to  the  risks  of  crowdfunding  offerings  (e.g.  risk  of  illiquidity,  of  losing  all  the 
money  invested  etc.),  but  also  on  the  platform  itself.  There  are  also  requirements  for  information  to  be  clear, 
sufficient, appropriate, accessible, objective and not misleading.  

However,  at  the  EU  level  the  Unfair  Commercial  Practices  Directive  already  prohibits  practices  where  the  traders 
provide  untruthful  or  deceiving  information,  or  omits  material  information  that  the  consumer  needs  to  make  an 
informed  decision  and  these  provisions  should  have  been  transposed  in  national  legislation.  These  information 
requirements  may  be  complemented  by  other  investor  education  requirements  (for  example,  the  investor  must 
answer  positively  to  a  questionnaire  demonstrating  that  she  or  he  understands  the  features  and  risks  of  the 
investment) or statements signed by investors acknowledging their understanding of the risks. 

It is worth noting that the Commission has recently published a Communication113 where crowdfunding activities are 
considered  as  significantly  exposed  to  money  laundering  (ML)  and  terrorist  financing  (TF).  While  some  Member 
States  have  decided  to  address  these  financial  products  in  their  national,  overall  the  anti-money  laundering  and 
terrorist financing (AML/CFT) EU legal framework remains inadequate. In its report, the Commission has underlined 
the variety of risk exposure to money laundering and terrorist financing risks depending on whether crowdfunding is 
directly linked to financial institutions or left to private initiatives on the Internet.  

113  COM(2017)340  final  –  Report  on  the  assessment  of  the  risks  of  money  laundering  and  terrorist  financing  affecting  the 
internal market and relating to cross-border activities 

97 

 
 
                                                            
Annex 5: Interplay with other EU legislation 
Crowdfunding platforms may need to have several functional licenses for their operations and might 
be subject to a variety of EU legislative frameworks. Not all EU legislation will apply to all business 
models  and  will  depend  both  on  the  type  of  business  model,  type  of  project  being  funded  and  in 
some cases the supervising local authority. For instance the Mortgage Credit Directive and Consumer 
Credit  directive  would  be  of  particular  importance  when  considering  consumer  lending-based 
crowdfunding.  As  far  as  the  EU  AML/CFT  framework  is  concerned,  it  is  not  generally  applicable  to 
crowdfunding  platforms  as  such  -  but  it  is  applicable  to  specific  types  of  crowdfunding  services 
depending on the business models. According to the ESMA,114 Directive 2005/60/EC (3AMLD) applies 
to firms including credit institutions and financial institutions, the latter including MiFID investment 
firms,  collective  investment  undertakings  and  firms  providing  certain  services  offered  by  credit 
institutions  without  being  one  (including  lending,  money  transmission,  participation  in  securities 
issues and related services).  

Key  pieces  of  EU  legislation  and  an  illustrative  overview  of  how  they  interact  with  the  main 
crowdfunding business models is provided in the table below. Annex 3 on EU Legislation provides a 
more  detailed  analysis  of  how  current  crowdfunding  business  models  interplay  with  the  below 
identified acts. 

114https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1378_opinion_on_investment-
based_crowdfunding.pdf   

98 

 
 
                                                            
Table 12. Illustrative summary of EU legal acts 

EU legal acts 

Investment 
based 
models 

Lending 
to 
business
es 

Lending  to 
individuals 
(business 
purposes) 

to 

Lending 
individuals 
(consumption 
purposes) 

Description 

(i)  Markets 

in 

Financial 

Instruments Directive 

X 

(ii)  Prospectus Regulation 

X 

X 

(iii)  Investor-compensation 

scheme 

X 

(iv)  Alternative 
Funds 
Directive 

Investment 
Manager 

X 

(v)  Distance  Marketing  of 
Services 

Financial 
Directive 

(vi)  Fourth 

Anti-Money 

Laundering Directive 

(vii)  Capital 
Requirements 
[MiFID 
Capital 
/ 
Requirements  Directive 
/  Capital  Requirements 
Regulation]  

(viii) Second 

Payment 

Services Directive 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

Applies  to  firms  carrying  out  MiFID  II  services/activities  in  relation  to  MiFID  financial 
instruments and not exempt under Art 3 of MiFID II. Article 3 (Optional exemptions) of MiFID 
II provides for an option for MS to exempt persons that do not hold client money or securities; 
and  only  provide  investment  services  of  reception  and  transmission  of  orders  and/or 
investment advice, given that they are regulated under a national regime. 
Applies when securities are offered to the public with a total consideration value above EUR 1 
and  up  to  8  million  (depending  on  the  Member  State)  over  a  period  of  12  months.  The 
regulation shall not apply to securities offerings below a total consideration of EUR 1 million. 
May apply to persons operating under the article 3 exemptions in MiFID II. MS  shall require 
exempt  persons  to  be  covered  by  an  investor-compensation  scheme  recognised  by  the 
97/9/EC Directive or to hold appropriate professional indemnity insurance. 
The Directive applies to collective alternative investment managers. It mostly concerns cases 
where  special  purpose  vehicles  (SPV)  or  holding  companies  are  used  to  finance  a  single 
project.  Where  a  chosen  financing  structure  exhibits  features  of  an  AIF,  regardless  of  the 
existing exemptions, they may fall within the scope of the AIFMD and hence require a licenced 
AIFM to manage them. 
Applies  where  there  is  a  contract  between  a  supplier  and  a  consumer,  which  is  concluded 
without the two parties being physically in the same place. 

Applies  to  persons,  including  credit  institutions  and  financial  institutions  as  well  as  persons 
that  engage  in  activities  "particularly  likely  to  be  used  for  money  laundering  or  terrorist 
financing  purposes".  Implementation  by  some  Member  States  has  not  sufficiently  covered 
some crowdfunding models, leaving AML rules not fully applied. 
Applies to credit institutions and investment firms carrying out regulated services/activities. 

Applies to Payment Service Providers, who conduct payment services (transfers, direct debits, 
card  payments,  money  remittances,  etc.)  on  a  regular  basis.  Includes  initiation  service 

99 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
institutions  that 

providers. 
Applies  to 
issue  E-money  (electronically  stored  monetary  value  as 
represented  by  a  claim  on  the  issuer  which  is  issued  on  receipt  of  funds  for  the  purpose  of 
making payment transactions and which is accepted by a different person than the issuer). 
Will apply to platforms where personal data is processed. 

to 

to 

all 

and 

sectors 

business 

regulates 

consumer 

Applies 
communications/practises pre- and post- sale, prohibiting misleading or aggressive practices. 
The Directive requires MS to ensure that there are means available to prevent use of unfair 
contract  terms.  However,  it  does  not  harmonise  the  details  of  how  such  action  should  be 
performed. 
Addresses  i)  credit  agreements  concluded  with  a  consumer  that  are  secured  either  by  a 
mortgage or by another comparable security on residential immovable property or secured by 
a  right  related  to  residential  immovable  property;  and  ii)  credit  agreements,  the  purpose  of 
which is to acquire or retain property rights in land or in an existing or projected building. 

commercial 

Applies to credit agreements in which credit is granted to a consumer, i.e. a "natural person 
who (…), is acting for purposes which are outside this trade, business or profession". 

(ix)  Electronic 
Directive;  

Money 

(x)  General  Data  Protection 

Regulation 

(xi)  Unfair 

Commercial 

Practices Directive 

(xii)  Unfair  Contract  Terms 

Directive 

X 

X 

X 

X 

(xiii)  Mortgage 
Directive 

(xiv)  Consumer 
Directive 

Credit 

Credit 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

100 

 
 
 
 
 
 
 
EU legislation 

Crowdfunding  platforms  can  have  several  functional  licenses  for  their  operations  and  have  been 
found to  be subject to a  variety of legislative frameworks. The  key directives that currently govern 
the operations of most of these platforms are:  

  Markets in Financial Instruments Directive;  

  Prospectus Directive;  

 

Investor-compensation scheme; 

  Alternative Investment Funds Manager Directive;  

  Distance Marketing of Financial Services Directive;  

  4th Anti-Money Laundering Directive  

  Capital  Requirements  [MiFID  /  Capital  Requirements  Directive  /  Capital  Requirements 

Regulation];  

  Payment Services Directive;  

  Electronic Money Directive;  

  ELTIF;  

  EuVECA/ EuSEF;  

  Data Protection Directive; 

  Unfair Commercial Practices Directive; 

  Unfair Contract Terms Directive; 

  Mortgage Credit Directive; 

  Consumer Credit Directive. 

Markets in Financial Instruments Directive 

MiFID would impose duties on the crowdfunding platform in its capacity as investment intermediary. 
To be within MiFID scope, a firm needs to be carrying on MiFID services/activities in relation to MiFID 
financial instruments, and not exempt. 

The  capital  requirements,  organizational  requirements  and  conduct  of  business  would  apply  as  for 
other investment firms depending in some cases on the services provided (such as whether or not 
investment advice is provided). Key areas for requirements: 

a)  Financial instruments 

MiFID applies in relation to the list of ‘financial instruments’ set out at Section C of Annex 1 
to  the  Directive.  The  financial  instruments  most  likely  to  be  used  in  investment-based 
crowdfunding are transferable securities e.g. equities or ‘mini-bonds’, though others such as 
units in collective investment undertakings would be possible. 

Many  Member  States,  including  Austria,  Belgium,  Germany  and  Sweden,  have  had 
experience  of  investment-based  crowdfunding  using  forms  of  participation  which  are  not 
considered  to  be  transferable  securities  or  to  otherwise  qualify  as  MiFID  financial 

101 

 
 
instruments,  meaning  that  the  platforms  do  not  have  to  be  authorised  under  MiFID  to 
intermediate in relation to those securities. 

Of the instruments specified in the list in Art 19(6) of 2004/39/EC, bonds or other securitized 
debt,  excluding  those  containing  a  derivative,  could  be  relevant  in  the  context  of 
crowdfunding.  The  equity  and  hybrid  instruments  through  which  crowdfunding  investment 
typically takes place have no secondary market and limited other opportunities to dispose of 
or realize the investment, making them complex instruments. 

b)  Services/activities 

The  activity  most  likely  to  be  carried  out  by  mainstream  crowdfunding  platforms  is  the 
reception  and  transmission  of  orders:  the  platform  receives  orders  from  investors  and 
transmits them to the issuer or another third party intermediary. 

The  service/activity  of  investment  advice  is  generally  not  a  part  of  platforms’  business 
models.  However,  it  was  noted  that  depending  on  how  platforms  presented  projects  they 
might in fact make such recommendations, inadvertently or otherwise, and would then need 
to comply with the relevant rules. It was also possible that investors might consider that they 
had  received  ‘advice’  when  technically  there  had  been  no  personalised  recommendation. 
While  this  risk  could  arise  in  many  situations,  the  issue  is  pertinent  in  relation  to 
crowdfunding platforms  because  of  the reliance investors  may  place in  the  platform’s  ‘due 
diligence’ and where investors have to fulfil  certain criteria in order to register in or invest 
through the platform. One NCA has developed a regime based on the optional exemption in 
Article 3 of MiFID which requires platforms wishing to benefit from that optional exemption 
to provide investment advice. 

Underwriting/placing  on  a  firm  commitment  basis  is  not  a  mainstream  activity  of 
crowdfunding platforms but it is possible that a particular platform would undertake to find a 
specified level of investment or, failing that, to take that stake itself. Any platform that did so 
would, in ESMA’s opinion, be subject to the full €730k MiFID/CRR capital requirements. 

this 

service/activity.  While  MiFID  may  apply 

The  service  of  ‘placing  without  a  firm  commitment  basis’  is,  like  many  other  MiFID 
services/activities, one which takes place in a wide range of contexts, some very far removed 
from  crowdfunding.  It  is  therefore  important  to  consider  the  wider  implications  of  any 
interpretation  of 
investment 
services/activities  related  to  the  issuance  of  securities  in  primary  markets,  MiFID  does  not 
regulate  the  public  offer  of  securities  in  the  primary  market  as  such.  That  is  done  by  the 
Prospectus Directive. The question is therefore what role the platform is playing in relation 
to the offer. In the case of crowdfunding, it appears that the same activity could potentially 
be  considered  as  reception  and  transmission  of  orders  or  as  placing  without  a  firm 
commitment  basis.  The  consequences  for  platforms  of  the  choice  of  applicable 
service/activity are as follows: 

to 

i. 

ii. 

Firms  which  carry  out  placing  cannot  be  exempted  under  the  Article  3  optional 
exemption. 

Firms which carry out placing are not within the scope of Article 31 of CRDIV. Article 
31  CRDIV  allows  firms  within  its  scope  to  hold  specified  levels  of  professional 
indemnity insurance instead of initial capital. 

To date, most crowdfunding platforms are operating in primary markets only. As such there 
is typically only one seller per financial instrument, though there may be multiple buyers. A 
characteristic of Multilateral Trading Facilities is that they bring together multiple buyers and 
sellers  of  a  financial  instrument.  Therefore  in  general  crowdfunding  platforms  are  not 
operating MTFs. However, it is clear that there is interest in developing secondary markets 
for these financial instruments. Where such  a secondary market brought together multiple 

102 

 
buying and selling interests in a system with non-discretionary rules in a way that resulted in 
a contract, it would be operating an MTF. 

c)  Exemptions 

Article  3  provides  the  option  for  Member  States  to  exempt  firms,  where  the  firms  meet 
certain  conditions.  Such  firms  do  not  benefit  from  a  passport,  but  are  also  not  subject  to 
MiFID capital or other requirements. The conditions are that such firms: 

i. 

ii. 

Do not hold of client money or securities; 

Provide only the investment services of reception and transmission of orders and/or 
investment advice; 

iii. 

Transmit orders only to authorised firms; 

iv. 
Prospectus Directive 

Are regulated at national level. 

The  Prospectus  Directive  requires  publication  of  a  prospectus  before  the  offer  of  securities  to  the 
public, unless certain exclusions or exemptions apply. The Prospectus Directive would be applicable 
to  securities  offered  to  secure  investment  in  projects  funded  through  crowdfunding  platforms. 
However: 

a)  PD applies only where instruments are transferable securities, as defined in MiFID [Arts 1(1), 
2(1)(a)]. If the instrument used were not a transferable security but nevertheless was a MiFID 
financial  instrument,  MiFID  disclosure  requirements  would  apply.  However,  where  the 
instrument  is  not  a  MiFID  financial  instrument,  any  disclosure  requirements  would  depend 
on  national  law  as  MiFID  would  not  be  applicable.  It  should  be  noted  that  provided  the 
instruments  are  transferable  securities,  the PD  would apply  to  the issue,  provided that  the 
size  of  the  offer  and/or  investor  base  triggers  the  application  of  the  PD,  even  if  it  were 
deemed that MiFID did not apply to platforms for other reasons. 

b)  The size of the offer may not trigger the application of the PD , because 

i. 

ii. 

Offers  with  a  total  ‘annual’  consideration  below  €5m  are  outside  the  scope  of  the 
Directive [Art 1(2)(h)] 

Offers  with  a  total  ‘annual’  consideration  below  €100k  are  excluded  from  the 
obligation  to  publish  a  prospectus  [Article  3(2)(e)];  however,  Member  States  have 
discretion  to  apply  national  requirements  to  offers  between  €100k  and  €5m  and 
practices in this regard vary 

c)  Offers are also exempt from the obligation to publish a prospectus if the offer is addressed 
only  to  ‘qualified  investors’,  which  are  essentially  professional  clients  under  MiFID  [Article 
3(2)(a), Art 2(1)(e)] 

d)  Offers are also exempt from the obligation to publish a prospectus if the offer is addressed to 
fewer  than  150  natural  or  legal  persons  per  Member  State  other  than  ‘qualified  investors’ 
[Art 3(2)(b)] 

Even  where  there  is  no  obligation  to  publish  a  prospectus  under  PD,  where  MiFID  applies  there 
would  still  be  disclosure  requirements  under  MiFID  in  relation  to  financial  instruments.  These 

103 

 
 
 
 
obligations would apply to the platform as the authorised investment firm, rather than directly to the 
issuer of the securities. 

Investor-compensation scheme; 

This  Directive  provides  access  to  compensation  up  to  a  specified  amount  for  investors  where  the 
investment  firm  is  no  longer  financially  able  to  meet  its  obligations  and  requires  all  authorised 
investment firms to belong to such a scheme. It applies to MiFID firms in relation to MiFID financial 
instruments.  Where  firms  are  exempted  from  MiFID  under  the  optional  exemption  2004/39/EC 
Article 3 the Investor-compensation scheme Directive does not apply, although Member States may 
require such firms to be members of an investor compensation scheme. 

Alternative Investment Funds Manager Directive 

Platforms which operate models based on indirect investment may be captured by the AIFMD and 
require an AIFM authorisation.  This  mostly concerns cases where special purpose vehicles  (SPV) or 
holding  companies  are  used  to  finance  a  single  project.  Investors  buy  securities  issued  by  SPV  or 
holding companies, whereas the latter hold securities or other interests in the project. The decision 
to invest in a project is taken by the investors, however, this investment is further managed by the 
platform  including  it  taking  decisions  to  sell  the  investment  and/or  liquidate  the  company  and 
potentially how to exercise any rights arising from the holding of securities in the project 

The AIFMD is applicable to a platform where it manages a non-UCITS collective investment scheme 
(CIS) which raises capital from a number of investors with a view to investing it in accordance with a 
“defined investment policy”. Where crowd investments are managed on a discretionary basis such a 
CIS could be qualified as an AIF and so the platform may be required to be authorised as the AIFM.  

The  AIFMD  does  not  regulate  composition  of  an  AIF,  i.e.  the  investment  product,  but  the  fund's 
manager – the AIFM. The Directive imposes a comprehensive catalogue of obligations for the AIFMs 
including  uniform 
licencing,  organisational  and  conduct  requirements,  rules  on  processes, 
transparency  and  on  custody  of  assets  as  well  as  common  standards  of  reporting  and  supervisory 
oversight.  

AIFMs are prevented from carrying out activities other than investment management, administration 
and marketing of an AIF and certain related activities. There is no provision for authorised AIFMs to 
carry out MiFID services/activities where the AIF is internally managed. Where the authorised AIFM 
is  a  legal  person  external  to  the  AIF  itself,  these  additional  services/activities  can  include  the 
management  of  investment  portfolios  in  accordance  with  mandates  given  by  investors  on  a 
discretionary  client-by-client  basis,  and  as  non-core  services  the  provision  of  investment  advice, 
safekeeping/administration  of  shares  or  units  of  CISs  and  reception  and  transmission  of  orders  in 
relation  to  financial  instruments.  In  relation  to  those  activities,  it  would  be  subject  to  the  initial 
capital, organisational and conduct of business requirements under MiFID. 

Marketing  of  AIFs  is  in  principle  restricted  to  professional  investors  (i.e.  professional  clients  under 
MiFID) [Articles 31, 32, 4(1)(ag)]. However, Member States may choose to allow marketing of AIFs to 
retail investors. 

104 

 
Platforms  operating  with  AIFM  licence  may  choose  to  focus  on  providing  long-term  investment 
opportunities  and  structure  their  AIFs  as  European  long-term  investment  funds  (ELTIFs)115.  These 
investment  vehicles  are  open  to  retail  investors,  however,  a  number  of  portfolio  composition 
requirements and investor protection rules apply. 

AIFMD contains various exclusions from its scope: 

a)  holding companies established to carry out the business strategy through its subsidiaries and 
does  not  have  the  primary  purpose  to  generate  returns  for  its  investors  by  means  of 
divestment of its subsidiaries. Platforms grouping together investors’ holdings in a company 
for  the  latter  purpose  are  not  likely  to  benefit  from  this  exemption  as  provided  in  Article 
2(3)(a) and could be considered as AIFs. 

b)  Special purpose vehicles (SPVs). SPVs established by crowdfunding platforms and exhibiting 
features  of  AIFs  may  fall  outside  the  Article  2(3)(g)  exemption.  As  a  result  the  platform 
managing such SPVs may need to obtain the AIFM licence. 

c)  AIFMs  which  manage  AIFs  with  total  Asset  under  Management  (AUM)  under  a  specified 
level.  Sub-threshold  AIFMs    are  at  least  subject  to  registration  by  the  home  MS  NCA  and 
provide  to  the  NCA  information  on  the  AIFs  they  operate  and  their  investment  strategies. 
The levels of AUM are €100m where there is leverage, and €500m where there is no leverage 
and no redemption rights are exercisable for 5 years after the initial investment [Article 3(1)-
(4)]. Reaching these thresholds would imply a significant growth relative to the typical scale 
of assets invested through most crowdfunding platforms. 

Sub-threshold  AIFMs  may  operate  two  other  types  of  European  CISs,  such  as  EuSEF  and  EuVECA 
funds  which  predominantly  invest  in  small  firms  and  social  enterprises  respectively.  The  managers 
are subject to a number of organisation requirements but these are fewer than compared to those 
imposed on the AIFMs following the AIFMD.  

Distance Marketing of Financial Services Directive;  

The  Directive  applies  where  there 
is  a  contract  between  a  supplier  (anyone  acting  in  a 
commercial/professional  capacity  who  in  that  capacity  provides  contractual  services  where  the 
contract  is  concluded  without  the  simultaneous  presence  of  the  supplier  and  consumer)  and  a 
consumer (any individual not acting in such a capacity) which is concluded without the two parties 
being physically in the same place. As such, it would be likely to apply in principle to the investment 
contract and to any separate contract with the platform, because the investor’s counterparty would 
be a supplier. [Arts 1, 2]  

Where it applies, the Directive requires information disclosures about the supplier and the financial 
right  of  withdrawal  and  any  applicable  out-of-court 
service,  whether 
redress/complaints/compensation mechanisms. [Art 3] 

there 

is  a 

115 Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-
term investment funds, OJ L 123/98, 19.05.2015. 

105 

 
 
 
 
 
 
 
                                                            
The Directive also provides for a 14 day right of withdrawal (longer for life insurance and pensions) 
but states that this right shall not apply to financial services “whose price depends on fluctuations in 
the financial market outside the supplier’s control, which may occur during the withdrawal period”. 
This exclusion from the obligation to provide for a right of withdrawal explicitly covers transferable 
securities  and  units  in  collective  investment  undertakings.  [Art  6(1),(2)]  Where  the  securities  in 
question  are  not  transferable  securities,  consideration  would  need  to  be  given  as  to  whether  the 
price  of  the  particular  security  was  capable  of  fluctuating  within  the  withdrawal  period  before 
determining whether the right of withdrawal should not apply. 

4th Anti-Money Laundering Directive (EU) 2015/849;  
The 4th AMLD prohibits money laundering and terrorist financing. [Art 1] It applies to firms including 
credit  institutions  and  financial  institutions,  the  latter  including  MiFID  investment  firms,  collective 
investment  undertakings  and  firms,  other  than  credit  institutions,  which  carries  out  one  or  more 
activities  listed  in  Annex  I  to  Directive  2013/36/EU  (including  lending,  payment  services,  money 
broking, issuance of electronic money) [Art  3(2)]. Member States are also required to extend it in full 
or in part to other categories of institution which engage in activities “particularly likely to be used 
for money laundering or terrorist financing purposes”, and to notify the Commission when they use 
this power. [Art 4]  
The Directive  requires  firms  to  carry  out a  risk  assessment of  their money  laundering and terrorist 
financing risks, and to adopt customer due diligence (CDD) measures commensurate to the level of 
risks. The CDD measures could be enhanced, normal or simplified [Arts 10-24] and to have in place 
appropriate record-keeping and other internal procedures [Arts 40, 45 and 46]. The fulfilment of CDD 
measures  could  rely  on  third  parties,  although  the  ultimate  responsibility  for  meeting  those 
requirements shall remain within the firms, which relies on the third party [Article 25-29]. Firms have 
an  obligation  to  report  any  suspicious  activity,  to  co-operate  with  any  investigations  by  relevant 
public  authorities,  and  not  to  disclose  the  report  or  any  investigation.  [Arts  32-39]  Member  States 
may impose stricter requirements. [Art 5] 

Capital Requirements [MiFID/ Capital Requirements Directive/ Capital Requirements Regulation];  

All  investment  firms  carrying  on  MiFID  services/activities  are  to  hold  initial  capital  of  €730,000 
[2013/36/EU,  Article  28(2)]  unless  they  meet  the  conditions  for  lower  initial  capital  or  an 
exemption116:  

1)  €125,000:  firms  which  receive  and  transmit  orders  and/or  execute  orders  and/or 
manage  portfolios  and  which  hold  client  money  but  do  not  deal  on  own  account, 
underwrite/place issues on a firm commitment basis, operate an MTF, or operate a 
UCITS/AIFM. [2013/36/EU, Art 29(1)]  

2)  €50,000:  where  firms  meets  the  conditions  to  be  a  €125,000  firm  except  that  they 
are  not  authorized  to  hold  client  money,  Member  States  may  reduce  the  initial 
capital requirement to €50,000. [2013/36/EU, Art 29(3)]  

116 “investment firm” defined in point (1) of Article 4(1) of Directive 2004/39/EC, which are not authorised to provide 
the ancillary service referred to in point 1 of Section B of Annex I to Directive 2004/39/EC, which provide only one or 
more of the investment services and activities listed in points 1, 2, 4 and 5 of Section A of Annex I to that Directive, 
and which are not permitted to hold money or securities belonging to their clients and which for that reason may not 
at any time place themselves in debt with those clients, are not subject to capital requirements set out in CRR/CRD 
(see the definition of an investment firm in point (2) of Article 4(1) of Regulation (EU) No 575/2013)); 

106 

 
 
 
                                                            
3)  Article 31 firms: firms which are not authorized to provide safekeeping services or to 
hold client money or securities and which provide only one or more of the services of 
reception  and  transmission  of  orders,  execution  of  orders,  portfolio  management 
and investment advice have to hold either initial capital of €50,000, or professional 
liability  from  professional  negligence  or  a 
indemnity 
comparable guarantee of at least €1m for each claim and €1.5m for all claims, or a 
combination of the two. [Directive 2013/36/EU, Art 29(3)]  

insurance  (PII)  against 

Table 13. Cases where MiFID/CRD/CRR provide for initial capital of less than standard €730,000 

Activity/service carried out 

Hold client money  
Reception  and  transmission  of 
orders  
Execution of client orders  
Dealing on own account  
Portfolio management  
Investment advice  
Underwriting  and/or  placing  on 
firm commitment basis  
Placing 
commitment basis  
Operation of MTF  

without 

firm 

N  
Y  

Y  
N  
Y  
Y  
N  

N  

N  

A  
B  

C  
D  
e  
f  
g  

h  

i  
Key:  

Initial capital required 
€50k or PII* 

€50k 
€125k) 
N  
Y  

(MS  option,  otherwise 

€125k 

Y  
Y  

Y  
N  
Y  
X  
N  

X  

N  

Y  
N  
Y  
X  
N  

X  

N  

  Y  =  firm  must  offer  one  or  more  of  these  services  to  be  eligible  for  the  stated  capital 

requirement  

  N= service that must not be offered to be eligible for the stated capital requirement  

  X= service that may be offered without affecting the initial capital requirement 

*Less if firm is also authorised insurance intermediary 

Payment Services Directive; 

The revised Payment Services Directive (Directive (EU) 2015/2366), which will be applicable from 13 
January  2018,  regulates  the  provision  of  payment  services  throughout  the  Union  by  six  different 
categories  of  payment  services  providers  (PSPs),  including  credit  institutions,  electronic  money 
institutions  and  payment  institutions.  While  credit  institutions  and  electronic  money  institutions 
remain  subject  to  the  prudential  requirements  laid  down  in  their  respective  applicable  legislation, 
the  first  Payment  Services  Directive  introduced  in  2007  payment  institutions  as  a  new  category  of 
payment  institutions,  subject  to  a  set  of  comprehensive  requirements  and  conditions  to  obtain  an 
authorisation,  in  order  to  remove  legal  barriers  to  market  entry  to  those  providers  of  payment 
services  which  are  not  connected  to  taking  deposits  or  issuing  e-money.  Additionally,  the  revised 
Payment  Services  Directive  (PSD)  creates  a  new  licensing/registration  regime  for  providers  of  new 
types of payment services such as the payment initiation service providers, who normally establish a 
software bridge between a merchant website and the online banking platform of the payer´s PSP in 
order  to  initiate  a  payment  on  the  basis  of  a  credit  transfer,  and  the  account  information  service 

107 

 
 
providers  who  provide  the  users  with  aggregated  online  information  on  one  or  more  payment 
accounts held with one or more PSPs. The application of this legal framework should be confined to 
PSPs who provide payment services as a regular occupation or  business activity (depending on the 
nature  of  the  business  undertaken  by  a  crowdfunding  platform,  it  is  possible  that  the  provision  of 
payment services could not be its regular occupation or business activity).    

Where those platforms are considered to provide payment services as their regular occupation, the 
provisions  of  the  revised  PSD  shall  be  considered,  especially  in  relation  to  the  following  payment 
services listed in its Annex I that may fit into their operational model: 

 

services enabling cash to be placed on or withdrawn from a payment account, as well as all 
the operations required for operating a payment account (points 1 and 2 of Annex I); 

  execution  of  payment  transactions  (direct  debits  including  one-off,  payment  transactions 
through a payment card or similar device, credit transfers), including transfers of funds on a 
payment account with the user´s payment service provider or with another payment service 
provider (point 3); 

  execution  of  payment  transactions  (direct  debits  including  one-off,  payment  transactions 
through a payment card or similar device, credit transfers), where the funds are covered by a 
credit for a payment service user (point 4); 

 

issuing of payment instruments and/or acquiring of payment transactions (point 5) 

  money remittance (point 6);  

  payment initiation services (point 7).   

The  revised  PSD  does  not  apply  to  payment  transactions  from  the  payer  to  the  payee  through 
commercial  agents  (platforms  included)  who  are  authorised  to  negotiate  or  conclude  the  sale  or 
purchase  of  goods  or  services  via  an  agreement  where  those  agents  or  platforms  act  on  behalf  of 
only the payer or only the payee. This exclusion from the Directive´s scope implies that when agents 
or  platforms  act  on  behalf  of  both  the  payer  and  the  payee  they  will  fall  under  the  revised  PSD, 
unless they do not, at any time, enter into possession or control of client funds. 

In  addition,  article  3  of  the  revised  PSD  includes  other  exclusions  that  could  be  relevant  for 
crowdfunding business models: 

  payment  transactions  with  a  view  to  placing  funds  at  the  disposal  of  the  payee  based  on 

paper cheques or paper-based vouchers; 

  payment  transactions  related  to  securities  asset  servicing,  including  dividends,  income  or 

other distributions, or redemption or sale;  

 

 

services  provided  by  technical  service  providers,  which  support  the  provision  of  payment 
services, without them entering at any time into possession of the funds to be transferred, 
including  processing  and  storage  of  data,  trust  and  privacy  protection  services,  data  and 
entity  authentication,  IT  and  communication  network  provision,  and  provision  and 
maintenance of terminals and devices used for payment services;  

services  based  on  specific  payment  instrument  that  can  be  used  only  in  a  limited  way, 
allowing the holder to acquire goods or services only in the premises of the issuer or within 

108 

 
 
a  limited  network  of  service  providers  under  direct  commercial  agreement  with  a 
professional issuer;  

 

services based on specific  payment instrument that can be used  only in a limited way and 
only to acquire a very limited range of goods and services. 

Based on the above, when the crowdfunding platforms provide payment services under the revised 
PSD and are not licensed as credit institutions or e-money institutions and do not fall under one of 
the exclusions, they will have to obtain the relevant authorisation as payment institutions from the 
national competent authority of their home Member State.  

In  this  case,  they  will  be  subject,  among  other  requirements,  to  initial  and  ongoing  capital 
requirements. Where only the service of money remittance is offered, the initial capital requirement 
is €20,000. Where providing payment initiation services, the initial capital is €50,000. For the rest of 
payment services mentioned above, these initial capital requirements are €125,000. There are also 
additional  ongoing  capital  requirements,  to  be  determined  in  accordance  with  one  of  the 
methodologies  set  out  in  Article  9,  which  reflect  the  size  and,  in  some  cases,  the  nature  of  the 
business undertaken. Article 8(2) requires Member States to take the necessary measures to prevent 
firms  from  double-counting  the  same  elements  when  determining  capital  requirements  within  a 
group or where payment institutions have a hybrid character and carry out other activities. For the 
provision  of  payment  initiation  services  there  are  no  own  funds  requirements,  but  to  hold  a 
professional indemnity insurance or some other comparable guarantee to ensure their liabilities. 

Among  the  requirements  that  payment  institutions  have  to  comply  with  and  provide  in  the 
application, we can point out the description of measures for safeguarding the user´s funds received 
to  execute  a  payment  transaction  as  specified  under  Article  10,  the  need  to  have  governance 
arrangements  and  internal  control  mechanisms,  including  administrative,  risk  management  and 
accounting  procedures,  description  of  intended  use  of  agents  and  branches,  identity  of  persons 
holding qualifying holdings, identity of directors and managers, the identity of statutory auditors and 
audit  firms,  etc.  an  authorisation  granted  to  a  payment  institution  allows  to  provide  the  payment 
services covered by it throughout the EU, under the freedom to provide services or the freedom of 
establishment. 

Article 32 of the revised PSD allows Member States to exempt certain entities from the application of 
all or part of the authorization procedure and conditions, where:  

 

the monthly  average of the preceding 12 months´ total value of  the payment transactions 
does not exceed a limit set by the Member State that cannot be above EUR 3 million, and 

  none of the natural persons responsible for the management and operation of the business 
has  been  convicted  of  offences  relating  to  money  laundering,  terrorist  financing  or  other 
financial crimes.   

These exempted entities will be treated as payment institutions, and will have to be included in the 
public  register  of  their  national  competent  authority  and  of  EBA.  They  will  not  benefit  from  the 
possibility  of  providing  their  services  in  other  Member  States  through  the  freedom  to  provide 
services or the freedom of establishment.   

Electronic Money Directive; 

109 

 
This  Directive  may  also  be  relevant  for  crowdfunding  platforms  as  it  lays  down  the  rules  for  the 
taking up, the pursuit and the prudential supervision of the business of electronic money (e-money) 
institutions.  E-money  is  defined  as  electronically,  including  magnetically,  stored  monetary  value  as 
represented by a claim on the issuer which is issued on receipt of funds for the purpose of making 
payment transactions under PSD and which is accepted by a natural or legal person other than the e-
money issuer.  

The E-money Directive recognises five categories of e-money issuers, including credit institutions and 
e-money institutions, which need to be licensed and supervised in accordance with the prudential, 
own  funds,  activity  and  safeguarding  requirements  regulated  therein.  E-money  institutions  are 
entitled to engage in other activities, such as the provision of payment services under PSD. They shall 
not take deposits or other repayable funds and any funds received by them from the e-money holder 
shall be safeguarded and exchanged for e-money without delay. 

EuVECA/EuSEF 

The EuVECA Regulation lays down conditions which managers have to meet if they want to use the 
designation “EuVECA” in marketing material relating to qualifying funds, which are established in a 
Member State and which intend to invest at least 70% of assets in small firms that do not issue listed 
securities and meet certain other conditions. [Arts 1-3] Such funds may not be leveraged [Art 5] and 
they may only be marketed to certain types of investors: those who are or choose to be treated as 
professional clients under MiFID, or who commit to investing at least €100k, or who state in writing 
in  a  separate  document  from  the  investment  contract  that  they  are  aware  of  the  risks  of  the 
commitment envisaged. [Article 6] Once registered as having met the conditions, AIFMs can market 
qualifying funds throughout the EU, using the designation EuVECA. 

In principle, it would seem attractive for a platform using an AIF as a vehicle for indirect investment 
in projects to seek to do so within the parameters of an EuVECA because the capital requirements 
are  likely  to  be  much  lower  than  for  an  AIFM  authorised  under  AIFMD  and  potentially  lower  than 
those  applicable  if  a  different  structure  were  used  requiring  authorization  under  MiFID,  and  the 
qualification would bring with it a passport which is not available to registered AIFs. 

The EuSEF Regulation follows the approach of the Venture Capital Regulation in relation to managers 
of funds investing in social enterprises, which where the requirements are met may be marketed as 
“EuSEF”s and benefit from a passport. The same restrictions on the clients to whom the funds may 
be marketed apply as in the Venture Capital Funds Regulation. [Art. 6] 

Data Protection Directive 

In  crowdfunding  there  is  likely  to  be  significant  processing  of  personal  data.  The  rules  of  the  Data 
Protection  Directive  will  apply  to  platforms  and  issuers/borrowers  where  personal  data  are 
processed. For example, data controllers should ensure that all data protection obligations are met, 
including  right  of  access  of  data  subjects  (individuals)  to  their  personal  data.  In  addition,  the  Data 
Protection  Directive  has  liability  and  compensation  provisions  for  unlawful  processing  of  or 
incompatible  acts  relating  to  the  processing  of  personal  data,  which  are  separate  from  the  other 

110 

 
liability regimes. Crowdfunding platforms need to ensure the awareness of and compliance with the 
obligations for data controllers and data processors and the rights of data subjects (individuals)117.  

Unfair Commercial Practices Directive 2005/29/EC (UCPD) 

This Directive regulates business to consumer commercial communications/practices pre- and post-
sale, in particular those which are misleading or aggressive. It applies to all sectors including financial 
services. Whilst the UCPD is generally based on the principle of full harmonisation, it expressly allows 
Member  States  to  impose  more  restrictive  or  prescriptive  requirements  in  relation  to  financial 
services.  Having  regard  to  the  robust  set  of  EU  sector-specific  legislation  that  exists  in  the  field  of 
financial services, the 'safety net' character of the UCPD is particularly apparent for this sector. The 
Commission  guidance  of  25  May  2016  concerning  the  application  of  the  UCPD,  SWD(2016)163, 
addresses specifically issues related to its application to financial services. In particular, traders must 
not  provide  misleading  information  or  omit  material  information  to  consumers  who  borrow  or 
'invest' money. The UCPD could therefore be relied on to determine that advertising/marketing was 
misleading  (including  through  omission  of  material  risks,  misleading  impression  of  the  service  the 
crowdfunding platform was offering including e.g. in relation to professional diligence), aggressive or 
otherwise unfair.  

Unfair Contract Terms Directive 93/13/EEC (UCTD) 

The Directive protects consumers against the use by traders of standard (not individually negotiated) 
contract terms which, contrary to the requirement of good faith, create a significant imbalance in the 
parties’ rights and obligations to the detriment of the consumer. Unfair terms are not binding on the 
consumer.  The  safeguards  of  the  UCTD  are  particularly  relevant  in  the  field  of  financial  services  as 
demonstrated by the rich case-law of the CJEU in this respect.   

The  Directive  requires  Member  States  to  ensure  that  there  are  means  available  to  prevent  the 
continued  use  of  unfair  contract  terms  and  specifically  requires  that  consumers  or  organisations 
must be able to take action before courts or before an administrative authority to obtain a decision 
as to whether the contract terms are unfair so that the court or authority can apply appropriate and 
effective means to prevent the continued use of such unfair terms. The Directive does not, however, 
harmonise the details of how people and organisations can go about taking such action. 

Mortgage Credit Directive 

The  Mortgage  Credit  Directive  (MCD)  addresses  (i)  credit  agreements  that  are  secured  either  by  a 
mortgage or by another comparable security on residential immovable property or secured by a right 
related  to  residential  immovable  property;  and  (ii)  credit  agreements  the  purpose  of  which  is  to 
acquire or retain property rights in land or in an existing or projected building. 

Under  the  Directive,  consumers  entering  into  credit  agreements  relating  to  immovable  property 
must benefit from a high level of protection. To this end, the Directive sets out obligations for lenders 
to  provide  consumers  with  clear  and  detailed  pre-contractual  information  regarding  the  loan 
conditions,  including  in  any  advertisements,  and  to  assess  their  creditworthiness  according  to 

117 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of 
individuals with regard to the processing of personal data and on the free movement of such data   

111 

 
                                                            
common EU standards. The Directive also lays down common quality standards and business conduct 
principles  for  all  mortgage  credit  lenders  in  the  Union,  including  specific  requirements  on  staff 
remuneration, knowledge and competence and standards for advisory services.  

The  Directive  gives  European  consumers  a  number  of  specific  rights.  These  include,  inter  alia,  the 
right to repay credit earlier than determined in a contract or, in the event of default, the right to  a 
reasonable and fair treatment before and after foreclosure proceedings are initiated. 

The Directive also provides for an EU passport scheme that allows credit intermediaries authorised to 
operate in one Member State to deliver their services across the EU. This aims to limit the barriers to 
the taking-up and pursuit of credit intermediation activities in the internal market, while ensuring a 
high level of professionalism and service, subject to adequate and ongoing supervision.  In addition, 
Member  States  shall  ensure  adequate  admission  and  supervision  of  non-credit  institutions  that 
engage in provision of mortgage loans within the scope of the Directive. 

Where  the  platform  would  be  considered  to  provide  mortgage  credit  in  the  course  of  their  trade, 
business or profession, it could be acting as a creditor to whom the obligations of the Directive apply. 
Where  the  function  of  the  platform  is  simply  to  provide  a  meeting  point,  it  could  potentially  be 
subject  to  the  Directive  requirements  on  credit  intermediaries  unless  its  actions  are  limited  to 
'merely introducing' the consumer and the creditor.  

Consumer Credit Directive 

The  Consumer  Credit  Directive  (CCD)  ensures  a  high  level  of  consumer  protection  by  focusing  on 
transparency  and  consumer  rights.  It  requires  lenders  to  provide  consumers  with  pre-contractual 
information in a standardised form (Standard European Consumer Credit Information), and with the 
Annual  Percentage  Rate  of  Charge  (“APR”),  i.e.  a  single  figure  representing  the  total  cost  of  the 
credit.  

Under the Directive, consumers are allowed to withdraw from the credit agreement without giving 
any  reason  within  a  period  of  14  days  after  the  conclusion  of  the  contract.  Furthermore,  they  are 
entitled to repay their credit early at any time. 

CCD  applies  to  credit  agreements  in  which  a  creditor,  defined  as  a  “natural  or  legal  person  who 
grants  or  promises  to  grant  credit  in  the  course  of  his  trade,  business  or  profession”,  grants  or 
promises to grant credit to a consumer, i.e. a “natural person who (...), is acting for purposes which 
are outside his trade, business or profession”. 

CCD  may  apply  to  peer-to-peer  platforms,  depending  on  their  activities  and  business  model.  For 
instance,  should  a  platform  itself  provide  credit  to  borrowers,  the  CCD’s  provisions  concerning 
creditors would apply.  

Conversely,  wherever  a  platform  does  not  lend  money,  but  rather  (i)  presents  or  offers  credit 
agreements to consumers; (ii) assists consumers by undertaking preparatory work in respect of credit 
agreements other than as referred to in (i); or (iii) concludes credit agreements with consumers on, 
behalf of a creditor, it may be considered a credit intermediary, as defined in letter (f) of Article 3 of 

112 

 
 
CCD.  In  this  case,  the  pre-contractual  information  requirements  and  some  additional  information 
concerning the intermediation apply.  

CCD does not apply where an investment firm or credit institution lends fund to a consumer for the 
purposes of investing in a MiFID financial instrument, where the firm providing the credit would  be 
involved  in  that  transaction.  So,  if  a  platform  were  authorised  under  MiFID  and  provided  credit  to 
investors to provide funds for them to invest in projects offered on that platform, the CCD would not 
apply.  

Codes of conduct 

In addition to regulatory frameworks put in place by governments, several industry associations have 
introduced  systems  of  self-regulation,  notably  codes  of  conduct  which  may  set  minimum 
requirements and best practices for platforms in terms of transparency and good business conduct, 
among other aspects. For example, the European Crowdfunding Network (ECN) has published some 
guiding  principles  as  its  Code  of  Conduct  for  observation  and  application  by  its  members  and  the 
European  crowdfunding  industry  at  large.  These  guiding  principles  are:  act  with  integrity  and  in 
fairness;  keep  your  promises;  disclose  conflicts  of  interest;  foster  data  transparency;  maintain 
confidentiality;  do  not  harm  the  industry,  society  or  environment;  use,  at  all  times,  adequate  and 
appropriate  human  and  technical  resources  that  are  necessary  for  the  proper  management  of  a 
crowdfunding  platform.  The  Code  of  Conduct  also  sets  out  specific  compliance  procedure,  such 
standardised  information  sheets  and  reporting  requirements.118  It  should  be  noted  that  the  Unfair 
Commercial Practices Directive provides a role for codes of conduct (as defined in the Directive) to 
enable  traders  to  apply  the  principles  of  the  UCPD  effectively  in  a  specific  economic  field.  For 
example, non-compliance by a trader with the commitments contained in certain codes of conduct 
by which the trader claims to be bound may constitute a misleading commercial practice under the 
UCPD. 

118  The  European  Crowdfunding  Network  is  a  Brussels-based  professional  network  promoting  adequate 
transparency, 
at: 
http://eurocrowd.org/about-us/code-of-conduct-2/.   

The  Code  of  Conduct 

governance. 

regulation 

available 

(self) 

and 

is 

113 

 
 
 
                                                            
Annex 6: Case Study extracts 
I. Invesdor  

A. Introduction 

Invesdor  is  a  leading  Nordic  equity  crowdfunding  platform,  a  representative  of  which  was 
interviewed in person on 20 March 2017. The interview lasted for around one hour.  

In addition to the data gathered during the interview, further desk research was conducted, which 
included not only the examination of Invesdor's website but also its press releases and press articles 
about the platform. 

The  platform  operates  in  Finland,  it  is  MiFID  licenced  and  its  type  of  crowdfunding  model  is  both 
equity and lending-based, the main product being mini-bonds. 

B. Cross-border experience 

Invesdor was forced to comply with MiFiD through a shift in the interpretations of existing laws by 
the Finish regulator. Once compliant, after around one year of preparations, the platform went on to 
passport the license successfully into the remaining 27 member states. When looking at executing its 
business model beyond its home market, the platform however realised that despite the passporting 
this  was  not  possible  due  to  other  legal  frameworks  that  related  to  crowdfunding.  The  platform 
therefore  chose  to  focus  on  the  markets  it  had  an  affinity  to  and  believed  to  be  able  to  achieve 
relevant scale, while no significant regulatory hurdles stood in its way, i.e. Scandinavia and the UK.  

The  main  obstacles  to  such  expansion  towards  other  MS  have  been  identified  both  in  the  MiFID 
authorisation  process,  which  makes  the  transactions  slower  because  of  the  screening  and 
authorisation process to be performed over every transaction, and in the fragmented tax laws.  

On the latter issue, they found that a harmonized approach on what is tax deductible and what is a 
tax benefit would make a notable difference in cross-border crowdfunding. 

II. 

Lendahand  

A. Introduction 

Lendahand  is  a  still  young  lending-based  platform  that  was  established  in  2014.  It  is  based  in  The 
Netherlands. A representative from the platform was interviewed on the 3 May 2017. The interview 
lasted for one hour. In addition to the interview, desk research was conducted.  

B. Cross-border experience 

The  platform  operates  mainly  cross-border,  by  receiving  fund  inflows  from  the  EU  with  the  aim  to 
invest in emerging markets outside Europe. 

The use of a MiFID license does not make the cross-border experience easier for the platform. The 
different national regulatory regimes do not allow for the full pass porting of the license in the MS - 
especially in Germany and UK - and they imply high compliance costs too.  

114 

 
 
The Dutch investment structure  used,  however,  does  allow  investing across  the world. Compliance 
cost remains a key hurdle for the platform to address cross border expansion. 

As  a  result,  the  platform  currently  only  allows  investments  from  other  two  EU  member  states, 
Belgium  and  Finland,  by  using  a  MiFID  brokerage  licence,  while  it  does  not  actively  markets  its 
products in other MS.  

For  the  platform  the  selection  of  a  MiFID  licence  to  operate  cross-country  has  proved  to  be  a 
challenging experience, resulting in burdensome and less flexible investment processes.  

Furthermore,  complying  with  different  national  regulation  implied  high  compliance  costs,  both  in 
monetary and in human resources terms: one out of eight employees work in compliance. 

III. Lendix 

A. Introduction 

A telephone interview with one representative of the platform was conducted on 20 May 2017 and 
lasted for one hour and 20 minutes. Additional sources were collected from the platform's website, 
press releases and press articles about the organization. 

Lendix is based in France; it is a lending platform that uses debt as its main product. 

B. Cross-border experience 

The platform is currently operational in France, Italy and Spain. Italy and Spain were chosen because 
of their potential in term of credit available and number of SMEs. 

In  order  to  operate  cross-border  the  platform  had  to  obtain,  at  each  national  level,  the  necessary 
registration/authorisation  to  operate  as  a  Marketplace  Lender  for  putting  in  contact,  through  its 
website, companies carrying projects and people financing such projects by way of loans. This status, 
indeed, cannot be transported from one EU country to another due to different regimes. Spain uses a 
different model for the regulation of lending-based crowdfunding and Italy has no specific regulation 
in place for this activity. 

The main challenge in complying with the individual national crowdfunding regulations has been the 
tedious  process  of  national  authorisation  for  operating  a  crowdfunding  business.  For  example,  in 
Spain it took the platform one year to get authorised and registered and it was not able to create the 
local entity and recruit before this. 

Generally, the difficulty of launching a cross-border business depends on whether there is an existing 
regulation or not.  

Usually, this venture requires recruitment of a local law firm which makes sure that the platform gets 
the  necessary  license/authorisation/exemption  and  complies  with  the  local  regulation  (including 
other local rules such as employment law, taxation, contracts). In the absence of specific regulation, 
the law firm usually advises on the legal matters related to the setup of the business. 

115 

 
 
The  regulatory  framework  is  the  deciding  factor,  as  in  some  legislations  the  entry  burdens  are 
extremely  high,  for  example  in  Germany  where  a  lending  platform  would  be  required  to  hold  a 
banking license or at least partner with a bank that holds such license. As a result, lending platforms 
have sought markets that provide relevant size and limited compliance efforts. 

VI. LUMO 

A. Introduction 

One  representative  from  Lumo  participated  in  the  focus  group  discussion  about  croudfunding  that 
was conducted on 25 April 2017 in Amsterdam. In addition to this data gathering, desk research took 
place, while the the platform's website served as a source of information, as well as press releases 
and press articles about the organization. 

Lumo is a lending-based platform that was established in France in 2012, its main products are loans 
and subordinated convertible loans. 

B. Cross-border experience 

The  main  cross-border  experience  for  Lumo  has  been  a  partnership  with  the  Duch  platform 
OnePlanetCrowd to raise funds for the solar park Torreilles, in southwestern France. 

Under French law, such a crowdfunding campaign would have required MiFID compliance, but Lumo 
decided to circumnavigate MiFID requirements and related cost.  

For  the  crossborder  transaction  with  Dutch  investors,  both  platforms,  Lumo  and  OnePlanetCrowd, 
worked  under  their  own  existing  local  licenses.  Lumo  offered  bonds  to  their  investors,  while 
OnePlanetCrowd  offered  loans.  In  order  to  ease  the  set  up  and  align  the  investors,  Lumo  and 
OnePlanetCrowd  set  up  a  special  purpose  vehicle  (SPV)  for  Dutch  investors  operating  under  their 
normal  structure.  Once  the  SPV  was  funded,  it  acquired  the  bonds  offered  by  Lumo  at  the  same 
conditions as the French investors. 

After extensive efforts to seek a regulatory approach for the platform to operate cross border, the 
platform  refocused  on  its  national  market.  At  this  point,  Lumo  does  not  believe  existing  local 
regulation  or  MiFID  will  enable  it  to  operate  cross  border  on  its  own  merits.  The  creation  of  a 
European status with defined rules directly applicable below all the existing exemptions thresholds of 
current European legislations would be necessary.  To this end, gold plating by national regulators or 
lawmakers  would  have  to  be  avoided;  a  European  passport  would  need  to  be  transferable  across 
different  regulations  and  national  interpretations  and  would  need  to  keep  the  national  regulators 
aligned across MS through direct application. 

Operating  co-investment  partnerships  such  as  with  OnePlanetCrowd  can  work  with  partners  in 
specific legislations, where crowd-based investment can be pooled for cross border transactions, like 
in  the  Netherlands.  Yet,  the  complexity  of  the  partnership  requires  sizeable  transactions,  a 
professional  partnership  with  trust  and  willingness  to  engage  and  adapt.  The  platform  does  not 
believe this model can be replicated given the operational effort and cost it brings for both parties, 
unless a relevant volume of high-value investments could be offered.  

116 

 
 
The  platform  expects  the  cross-border  transaction  with  OnePlanetCrowd  to  remain  an  exemption, 
though might seek to replicate it if another relevant transaction should arise. 

However, it did create significant operational cost. Both platforms state that from a business point of 
view the transaction has not been cost effective. More and larger transactions would be needed to 
cover the cost of building such a partnership 

V. Seedrs 

A. Introduction 

Qualitative  research  was  undertaken  on  4  May  2017,  when  one  representative  of  the  platform 
Seedrs was interviewed. The interview was conducted by phone and lasted for around 35 minutes. 
Additional information was gathered through the examination of the platform's website, as well as 
press releases and press articles about the platform. 

Seedrs  is  based  in  the  UK,  it  is  an  equity  based  crowdfunding  platform  and  its  main  offerings  are 
equity, equity funds and convertible equity. 

B. Cross-border experience 

The  platform  is  UK  based,  but  it  operates  in  Lisbon,  Berlin  and  Amsterdam  as  well  through  its 
representative  offices.  In  order  to  simplify  cross-border  transactions  the  platform  operates  via  a 
nominee structure, with the investors represented by a nominee under UK law, which then can make 
investments outside the UK. 

The  hurdles  faced  by  the  platform  in  cross-border  operations  were  identified  in  the  different 
prospectus obligations and in the investors' identity verification.  

Having regard to the latter issue, here it needs to be clarified which electronic verification methods 
can be used by the financial services industry, and it remains costly to adjust the platform operations 
to different national aspects, moreover, difficulties were faced in accessing a comparable database of 
information with regard to KYC across MS. 

VI. Crowdcube 

A. Introduction 

The  platform  was  interviewed  on  6  June  2017.  The  interview  lasted  around  45  minutes  and  was 
conducted by phone. 

Further  data  was  collected  through  the  examination  of  the  platform's  website,  as  well  as  press 
releases and press articles about the platform. 

Crowdcube  is  a  UK-based  crowdfunding  platform,  which  follows  an  equity  based  model,  while 
offering equity as well as mini-bonds as their main product. 

117 

 
 
 
B. Cross-border experience 

Crowdcube is one of the largest equity crowdfunding platforms in the UK; it currently operates in the 
UK and Spain and soon in The Netherlands and France. 

With the aim to test new markets, the platform has tried in the past to pursue cross-border business 
in Spain, Italy, Poland and Sweden under the structures of joint-ventures. Those previous expansion 
attempts have been halted by regulatory and commercial problems such to make an investment in 
those countries not economically viable. 

In  a  cross-border  setting,  fragmentation  of  regulatory  frameworks  across  MS  creates  challenges, 
even  with  Crowdcube’s  MiFID  passport.  Examples  include  rules  on  investor  limits  (e.g.  investment 
limit vs. self-declared limit for retail investors), marketing rules, rules on tax incentives, rules on the 
types of crowdfunding permitted by law (e.g. in Germany equity-based crowdfunding in the form of 
issuing shares  is  very  restrictive).  Moreover,  differences  in national  company  laws  create also  legal 
uncertainty in a cross-border setting (e.g. the use of a notary in the issuance of shares is required by 
some MS, the nominee structure for holding shares on behalf of the investors is not allowed in all 
MS).  Last  but  not  least,  the  fragmented  interpretation  of  cross-border  investments  and  lack  of 
guidance  by  the  European  and  national  regulators  creates  a  great  deal  of  legal  uncertainty  which 
prevented the platform from actively marketing its products across borders. 

VII Abundance 
A. Introduction 
Abundance  is  a  UK-based  crowfunding  platform  focusing  on  renewable  energy  projects.  Together 
with two other crowdfunding platforms, Abundance participated in a focus group about cross-border 
crowdfunding  on  25  April  in  Amsterdam.  Further  data  was  collected  through  desk  research  from 
publicly available sources, including the company website. 
B. Cross-border experience. 
The platform's  experience  with cross-border crowdfunding  has  proved  to  be difficult.  The  platform 
has a MiFID licence and a European passport and it can, in theory, operate cross-border. However, in 
practice, it is not easy due to fragmentation of national interpretation of MiFID framework. As it was 
phrased, "the ability to seamlessly operate across Europe does not exist". 
Between 2014 and 2017, the platform was part of Citizenergy, an EC funded project aimed to enable 
cross  border  crowdfunding  for  renewable  energy.  The  platform's  existing  MiFID  licence  and 
operational  structure  was  proposed  to  be  the  backbone  of  the  project  expansion.  The  platform 
considered selected countries, as represented within the project consortium, to see whether it could 
offer its services in them with the use of its MiFID licence. After extended researches, it found that it 
was extremely difficult in most of the cases, both at an operational and legal level. 
The  attempt  was  stopped  due  to  lack  of  funding  and  economic  considerations,  based  on  the 
incompatible national regulations regarding crowdfunding. 

VIII Companisto  
A. Introduction 
Companisto  is  the  largest  equity  crowdfunding  platform  offering  subordinated  loans  in  Germany 
both by volume and by value. A telephone interview with Companisto was conducted on 2 June 2017 

118 

 
 
 
and lasted for 1 hour and 30 minutes. Further data was collected through desk research from publicly 
available sources, including the company website. 
B. Cross-border experience 
The  platform  launched  an  English  web  site  early  in  its  history  in  order  to  attract  business  across 
borders,  but  has  remained  centred  around  its  home  market,  with  to  date  only  minor  cross-border 
activities. 
Due  to  the  particularities  of  German  crowdfunding  regime  regarding  the  investment  products  that 
can be offered by crowdfunding platforms (mainly profit-participating loans and subordinated loans), 
the cross border activity for the platform is more challenging than for other platforms in other MS. 
Member states that allow for equity to be offered by crowdfunding platforms do not recognize the 
German profit-participating loans as a tradable security. 
This means that to establish its business in another MS the platform has first to examine whether the 
structure  of  its  investment  products  is  accepted  as  crowdfunding  products  under  the  host  MS 
regime. 
As a result, even if expansion across the border was an early goal for the platform and investor on 
boarding was enabled by offering an English web site, offerings from outside Germany remains low. 
The specific German crowdfunding regime that has been implemented over the past years has made 
further activities complex. 
Unless  the  German  legislation  does  not  change  the  platform  does  not  consider  cross  border 
expansion an economically viable model. 

119 

 
 
 
 
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121