COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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

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   EUROPEAN COMMISSION  Brussels, 8.3.2018 SWD(2018) 57 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE 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) 56 final}  
 
 
Impact assessment on a legislative proposal for a European crowdfunding services regime for business 

Executive Summary Sheet 

A. Need for action 

Why? What is the problem being addressed?  
Crowdfunding  is  a  technology-enabled  financial  service  that  carries  the  potential  to  help  business  projects  in 
need  of  funding  and  investors  to  diversify  their  portfolio.  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  where  venture  capital  or  even  private  equity  funds  are  only  partially  taking 
interest  in  them.  Crowdfunding  provides  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.  Crowdfunding 
complements  bank  finance  and  corporate  and  thereby  diversifies  the  sources  of  finance  in  the  economy.  It 
provides new opportunities in particular for young, innovative companies without extensive collateral, fixed asset 
or financial track record. 

Despite  this  important  role,  EU  crowdfunding  markets  for  business  finance  are  largely  underdeveloped 
compared  to  other  major  economies,  and  most  importantly  unable  to  properly  operate  cross-border.  Recent 
studies and evidence gathered via targeted consultations has confirmed that, due to fragmented and conflicting 
regulatory  regimes,  crowdfunding  platforms  are  unable  to  scale  and  freely  provide  their  services  on  a  pan-
European level. Likewise, investors refrain to engage cross-border due to a lack of trust in those platforms and 
their fragmented regulatory frameworks applicable to the service provision.. 

What is this initiative expected to achieve?  
The  initiative  aims  to  enable  crowdfunding  activity  across  the  EU  Single  Market  for  early  stage  finance  and 
alternative finance for SMEs, in line with the objective of the Capital Markets Union (CMU). The initiative would 
also help to further diversify Europe's financial system for the benefit of financial stability, investor protection and 
competition  among  market  players.  The  initiative  has  two  specific  objectives.  The  first  objective  is  to  enable 
platforms to scale cross-border, namely by creating a licensing regime that can be used across the EU without 
requiring further authorisation in each EU country. The second objective is to ensure that platforms are subject to 
a framework ensuring proper management of platforms and protection of fund providers, by focusing on sound 
risk  management  –  notably  on  business  conduct,  fit  and  proper,  risk  management,  due  diligence  -  and  on 
adequate information disclosure. This should increase investors' trust to engage cross-border. 

What is the value added of action at the EU level?  
The  action  taken  will  address  the  problems  as  identified  in  the  impact  assessment,  that  is  the  difficulty  for 
platforms  to scale across EU borders  as well as  the lack of trust for cross-border  investments and fundraising 
that  we  are  currently  facing.  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. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
The Impact Assessment has considered the following policy options: 

  Option 1 - Baseline scenario (no EU action) 
  Option 2 - Building on reputational capital: minimum harmonisation combined with self-regulation 
  Option 3 - A product-based approach: bringing crowdfunding within the existing single rulebook 
  Option  4  -  A  complementary  service-based  solution:  a  voluntary  "European  Crowdfunding  Provider 

(ECP)" regime that would define certain common EU standards for crowdfunding regimes. 

Upon  evaluation  and  consideration  of  the  impacts,  the  fourth  option  (ECP  regime)  was  found  to  be  preferable 
because  it  provides  a  clear  regulatory  framework  to  address  the  problems  identified,  whilst  remaining 
proportionate and minimising compliance costs. 

Who supports which option?  
Stakeholders have expressed support for a regulatory approach through several open public consultations. First, 
as regards the 2015 Green Paper on CMU, and although a few respondents clearly stated that no action was 

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necessary  at  EU  level,  many  respondents  called  for  regulatory  certainty  at  EU  level  to  facilitate  cross-border 
activity  and  greater  trust  through  transparency  and  investor  protection.  Second,  in  the  context  of  the  2017 
consultation on the CMU Mid-term review, many respondents made similar statements arguing in favour of the 
development of a proper legal framework for crowdfunding across the EU, so as to create a market of sufficient 
size. Third, in the consultation on FinTech that closed on 15 June 2017 most respondents believed that national 
regulatory  regimes  hindered  cross-border  crowdfunding  activity  and  that  an  EU-level  harmonisation  was 
therefore required. Among the potential areas for harmonisation cited were platforms' disclosure requirements, 
registration requirements and investor protection rules. 

Moreover,  on  the  basis  of  the  inception  impact  assessment,  most  representatives  of  Member  States  in  the 
meeting of the Expert Group of the European Securities Committee (10 November 2017) expressed support for 
EU  regulation  in  this  area  (option  4)  and  a  few  Member  States  suggested  an  initiative  to  harmonise  national 
regimes (option 3). 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?  
The preferred option provides crowdfunding platforms with a simple and comprehensive method of scaling their 
cross-border  operations  under  a  new  EU  label.  Common  provisions  on  governance  and  transparency 
requirements  for  platforms  will  also  give  cross-border  investors  assurances  with  regard  to  proper  protection 
against  issues  like  conflicts  of  interest  or  fraudulent  activities  and  better  information  about  the  projects  being 
financed.  Overall  action  could  reduce  cost  of  non-Europe  by  at  least  EUR  20  billion  in  new  market  volume  in 
Europe. 
By  providing  additional  financing  opportunities  in  particular  for  start-ups  and  innovative  SMEs,  the  initiative  is 
also expected to have a positive effect on economic growth, job creation and innovation. SME's currently employ 
67% of the European workforce and are a significant driver of innovation. At the same time, SME's continue to 
experience  significant  problems  to  raise  funds.  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. 

What are the costs of the preferred option (if any, otherwise main ones)?  
The  preferred  options  generate  compliance  costs  for  platform  providers,  which  are  detailed  in  Annex  3  of  the 
Impact  Assessment  and  vary  whether  the  regulated  entity  was  already  authorised  under  MiFID  and  whether 
platform  providers  seek  or  have  sought  authorisation  in  multiple  countries.  There  will  be  an  increase  in 
compliance costs if the platform's activity is currently unregulated and if it provides or intends to provide services 
only in one country. The preferred option may also generate costs for administrations. The proposal might have 
some budgetary implications for ESMA, estimated around EUR 2.5 million, to be shared among industry and the 
EU budget in the first year of full implementation.  

How will businesses, SMEs and micro-enterprises be affected?  
Businesses, SMEs and micro-enterprises are the main users of crowdfunding platforms. This initiative will thus 
ensure that they will have additional sources funding available as an alternative to traditional financing measures 
such as bank loans, overdrafts and credit card debt that are often expensive for early-stage businesses. As the 
average fee to access crowdfunding is typically lower than costs of short-term bank  funding, the initiative may 
also result in a reduction of funding costs for SMEs at early and first expansion phase. 

Will there be significant impacts on national budgets and administrations?  
The preferred option holds  implications in terms of costs and  administrative burden for NCAs  and  ESMA. The 
magnitude  and  distribution  of  these  costs  will  depend  on  the  precise  requirements  placed  on  ECPs  and  the 
related  supervisory  and  monitoring  tasks.  However,  the  cost  implications  for  supervisors  will  be  significantly 
lower than those arising from a respective MiFID authorisation.  
While  there  are  no  concrete  estimates  available  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'. Depending on the involvement of ESMA in the authorisation and supervisory process, there will 
also  be  a  cost  impact  on  the  EU  budget.  Assuming  that  ESMA  will  be  in  charge  of  authorising  ECPs,  it  is 
estimated that there will be a one-off costs of around EUR 500,000 in order to setup respective IT systems and 
arrange for a team to take charge of the authorisation process. 

Will there be other significant impacts? Max 6 lines  

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None. 

D. Follow up 

When will the policy be reviewed?  
The  crowdfunding  market  is  growing  fast  and  business  models  evolve  in  line  with  rapid  technological 
developments. The relevance of the policy approach will therefore be monitored on a regular basis in line with 
the  Better  Regulation  approach  to  make  sure  that  the  scope  of  the  action  (investment  and  lending  based 
crowdfunding  in  projects  up  to  EUR  1  million)  and  the  extent  of  the  measures  are  always  aligned  with  their 
objectives and do not become disproportionate. 

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