EU adopts and approves new rules for crowdfunding platforms

Beginning of October 2020 has seen the new crowdfunding regulation approved for businesses within the European Union. This means the regulation will come into force within one year from now, and platforms in the sector must now prepare to adopt their business to new regulation and directive.

The new legislation provides for numerous mechanisms to protect investors, for example, key information will be provided regarding investments, risks and financial burdens that they might incur.

It will be in competence of local authorities of each country to authorize, in accordance with adopted rules and requirements, and supervise crowdfunding platforms.

The provision of crowdfunding services aims to facilitate the funding of a project by raising capital from a large number of people who each contribute relatively small investment amounts through a publicly accessible internet-based information system. Crowdfunding services are thus open to an unrestricted pool of investors who receive investment propositions at the same time and involve the raising of funds predominantly from natural persons, including those that are not high-net worth individuals.

In relation to lending-based crowdfunding, this Regulation should apply to crowdfunding services which consist of the facilitation of granting of loans, including services such as presenting crowdfunding offers to clients and pricing or assessing the credit risk of crowdfunding projects or project owners. The definition of crowdfunding services should accommodate different business models enabling a loan agreement between one or more investors and one or more project owners to be concluded through a crowdfunding platform. Loans included within the scope of this Regulation should be loans with unconditional obligations to repay an agreed amount of money to the investor, whereby lending-based crowdfunding platforms merely facilitate the conclusion by investors and project owner of loan agreements without the crowdfunding service provider at any moment acting as a creditor of the project owner.

Thanks to the new regulation, every small and medium-sized business will be able to present itself to small and large investors, also from other countries of the Union, through approved portals and collect up to. 5 million per year, more than enough for SMEs or starting business ideas.

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