On 10 November 2021, the Crowdfunding Service Provider Regulation ((EU) 2020/1503 - European Crowdfunding Service Provider Regulation - "ECSPR") will enter into force. Upon entry into force of the ECSPR, the services regulated therein (e.g. the facilitation of granting of loans or the placing without a firm commitment basis (i.e. the placement business in Germany) as well as the reception and transmission of client orders (i.e. the investment brokerage in Germany) of transferable securities and crowdfunding instruments, in each case via a platform) will be subject to an independent licensing requirement, which will take precedence over the licensing requirements like those pursuant to section 34f of the German Trade Regulation Ordinance (GewO) and section 15 of the German Investment Firm Act (WpIG).
The ECSPR applies to crowdfunding services. Crowdfunding services are the facilitation of granting of loans or placing without a firm commitment basis and the reception and transmission of client orders of transferable securities and admitted instruments for crowdfunding purposes. The service must be offered through a publicly accessible internet-based crowdfunding platform.
Crowdfunding offers of more than EUR 5 million are excluded from the scope of the ECSPR. The threshold value is calculated for a period of 12 months. For crowdfunding offers exceeding EUR 5 million, the currently existing regulations apply as before (thus for Germany in particular the Capital Investment Act (VermAnlG), the EU Prospectus Regulation, the Securities Prospectus Act (WpPG) as well as the Trade Regulation Ordinance (GewO), the German Banking Act (KWG) or the Investment Firm Act (WpIG)).
Also, the ECSPR does not apply if the issuer (e.g. the borrower) is a consumer.
The crowdfunding service can refer to three different instruments: Loans, transferable securities, as well as so-called "admitted instruments for crowdfunding purposes".
a) Loans - problem case: subordinated loans - "genuine crowdlending".
First of all, loans can be brokered by a crowdfunding service provider. In Germany, there are different models: so-called "non-genuine crowdlending" and "genuine crowdlending".
In "non- genuine crowdlending", the loans are first issued via a fronting bank and then sold to the investor. In "genuine crowdlending", on the other hand, the loans are issued directly via the platform. In this process, subordinated loans are usually issued in Germany. This also serves to avoid the need for permission as a lending or deposit-taking business.
The intermediation of subordinated loans via a platform is unlikely to be covered by the ECSPR. The ECSPR defines "loan" as (among other things) unconditionally repayable. The German Federal Financial Supervisory Authority (BaFin) assumes in its previous administrative practice that subordinated loans are, however, precisely not necessarily repayable, but undergo a change in nature due to the equity-like liability function. This reasoning will also be transferable to the ECSPR. It should be noted, however, that a "securitisation" of the subordinated loans (for example through tokenisation) can turn loans (including the subordinated ones) into securities. This would then again be covered by the regulation of the ECSPR.
In addition, from a regulatory perspective, subordination will no longer be required in the future if the loan is granted via a platform with an ECSPR licence. According to the ECSPR, Member States must ensure that project owners and investors do not require authorisation as a credit institution for the loans facilitated by the crowdfunding service provider. To this end, the German Banking Act will also be amended as of 10 November 2021.
Crowdfunding services may also relate to securities. Transferable securities are those referred to in MiFID II. The term was implemented in Germany in the Securities Trading Act.
c) Admitted instruments for crowdfunding purposes
Admissible instruments for crowdfunding purposes include, in principle, shares in a private limited liability company that are not subject to restrictions that would effectively prevent the transfer of the shares, including restrictions on the way in which those shares may be offered or advertised to the public. This statement needs to be interpreted under the laws of the relevant EU member state. However, in no case should this be understood to mean that shares in a German GmbH are an admitted instrument for crowdfunding purposes. The transfer of GmbH shares requires notarisation, so they are subject to a transfer restriction. The German market will continue to focus on loans or securities. As securities, shares in stock corporations may fall under regulation in the future.
Legal persons wishing to provide crowdfunding services require a licence from the competent authority of the Member State in which they are established. The competent authority in Germany is BaFin.
Crowdfunding service providers that have a permit under the ECSPR do not require an additional permit under the WpIG or the KWG. However, companies that have a licence under the WpIG or the KWG also require a licence as a crowdfunding service provider if they wish to provide crowdfunding services. However, the effort required for these institutions to obtain a permit as a crowdfunding provider is considerably lower. Information and documents already submitted when applying for a permit under Directives 2009/110/EC, 2013/36/EU, 2014/65/EU or (EU) 2015/2366, i.e. having a permit as an e-money institution, payment institution, credit institution, financial services institution or securities institution in Germany, do not have to be submitted again. Rather, the ECSPR considers it sufficient if the documents submitted as part of the original application for authorisation are still sufficiently up-to-date.
Currently, BaFin has not yet published any announcements on the permission procedure. A submission should only be possible from 10 November 2021. At the same time, companies can continue to operate under their existing permits until November 2022, until they have been granted a permit as a crowdfunding service provider.
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