On 10 November 2021, the Crowdfunding Service Provider Regulation ((EU) 2020/1503 - European Crowdfunding Service Provider Regulation - "ECSPR") will enter into force.
In a first post, we reported on the scope of application of the ECSPR and the permission requirement for crowdfunding service providers; in a second post, on the ongoing requirements for crowdfunding service providers and their conduct obligations; in a third post, on the treatment of crypto-tokens under the ECSPR. In this fourth contribution, we will address the question of how the structures of crowdfunding platforms that have occurred in Germany to date should be treated under the ECSPR.
Crowdlending platforms have so far had various design options - and thus always the requirement to find out whether and which licence they need. This ranged from a permit as a credit broker under the German Trade Regulation Act (GewO) to a MiFID-license under the German Banking Act (KWG) or the German Investment Firm Act (WpIG). In the future, permission under the ECSPR will be sufficient for crowdlending platforms (within the scope of the ECSPR). This will facilitate the structuring and authorisation process for crowdlending platforms.
Crowdlending platforms often work together with licensed institutions (fronting banks) acting on their own behalf and/or broker subordinated loans. As already mentioned in our first article, the ECSPR remedies this situation to the extent that project owners and investors on a crowdlending platform will not need a licence as a credit institution in the future if they accept or grant the loans brokered by the crowdlending service provider.
However, crowdlending platforms will only be allowed to provide payment services in the future if they are payment service providers under the Payment Services Supervision Act or its EU legal basis, the PSD2, or under the law of another EU member state.
Crowdinvesting, unlike crowdlending, does not involve brokering a loan, but rather profit-sharing, debt instruments or shares in the project owners.
Crowdinvesting platforms have also generally required a permit under the German Trade Regulation Act (GewO), the German Banking Act (KWG) or the German Investment Firm Act (WpIG). Here too, permission under the ECSPR will suffice for crowdlending platforms in the future.
In addition, there is usually also a prospectus obligation under the Prospectus Regulation and the German Securities Prospectus Act (WpPG) or the Asset Investment Act (VermAnlG). Insofar as the crowdinvesting platform meets certain requirements, it is possible to prepare only a securities information sheet or an asset investment information sheet instead of a prospectus. The crowdinvesting platform must therefore always delimit and check which documents it must provide to the investor. In the future, the key investment information sheet (KIIS) will take over investor education. This also simplifies the work of the crowdinvesting platform.
A certain number of crowdfunding platforms currently act as tied agents for credit institutions or investment firms. Both the German Banking Act (KWG) and the German Investment Firm Act (WpIG) make special provisions for tied agents. As a tied agent, the crowdfunding platform operates under the liability umbrella of the institution and performs the regulated activity exclusively for the account and under the liability of the respective institution.
It is true that the ECSPR does not have a corresponding regulation. However, the regulations on the tied agents are only a special form of outsourcing. The ECSPR also contains provisions on outsourcing. Recital 27 of the ECSPR also emphasises that
"In the interest of the efficient and smooth provision of crowdfunding services, crowdfunding service providers should be allowed to entrust any operational function, in whole or in part, to a third party provided that such outsourcing does not impair the quality of crowdfunding service providers’ internal controls or the effective supervision of the crowdfunding service providers. Crowdfunding service providers should however remain fully responsible for compliance with this Regulation with respect to the outsourced activities.”
However, the requirements of the ECSPR (regulated in Article 9 of the ECSPR) for outsourcing are very rudimentary compared to the specific regulations of the German Banking Act (KWG) and German Investment Firm Act (WpIG) (specified in BaFin's MaRisk and Delegated Regulation (EU) 2017/565).
The ECSPR can be understood here in such a way that full outsourcing to third parties can take place as long as ultimate responsibility remains with the crowdfunding service provider and the quality of the crowdfunding service provider's internal control is not compromised.
However, it is problematic that the current German crowdfunding platforms, which act as tied agents, usually operate the platform themselves and only provide the regulated activity under the liability umbrella. Whether this division of activity and responsibility is also possible under the ECSPR seems questionable. Under the ECSPR, the crowdfunding service must be provided with the help of a crowdfunding platform operated by the crowdfunding service provider. Therefore, attention must be paid here to the proper design of the cooperation and outsourcing. It remains to be seen whether it will be possible to set up a service-crowdfunding financing platform comparable to the well-known service-fund manager under the German Capital Investment Code (KAGB).
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