The Crowdfunding Regulation ((EU) 2020/1503 - European Crowdfunding Service Provider Regulation - "ECSPR") has now been in force for almost 15 months. Several EU member states have already granted authorisations under the ECSPR. Time to take a look at how cross-border service provision works.
The granting of authorisation by the respective home Member State authority is the first step so that the crowdfunding service provider can operate. In order to be able to offer the crowdfunding services not only limited to the home Member State and to be able to use the decisive advantages of the ECSPR - the Europe-wide provision of services - a so-called EU passport must be issued. The first step towards this provision is a notification to the home Member State authority (i.e., the authority that has already granted the authorisation).
The notification should first contain a list of the Member States in which the crowdfunding service provider would like to provide the crowdfunding services. A German crowdfunding service provider that wants to expand its services to the Netherlands thus enters the Netherlands here.
In addition, the notification shall specify the identity of the natural and legal persons responsible for the provision of the crowdfunding services in the host Member State and the starting date of the intended provision of the crowdfunding services by the crowdfunding service provider. Last but not least, the other activities carried out by the crowdfunding service provider but not covered by the ECSPR that are to be provided in the host Member State must also be indicated.
After the notification has been submitted, the crowdfunding service provider has to wait a bit. The home Member State authority (in our example, BaFin) communicates the information from the notification to the host Member State authority (in our example, the Dutch AFM) and ESMA within 10 working days of receiving the notification. ESMA keeps a register of crowdfunding service providers in which the notification is noted. The home Member State authority informs the crowdfunding service provider that the notification has been passed on.
The crowdfunding service provider may start providing crowdfunding services in the host Member State as soon as it has received the information on the transfer from the home Member State authority, but at the latest 15 calendar days after its notification.
The Key Investment Information Sheet (KIIS) raises specific questions about the language. Crowdfunding service providers must provide a so-called key investment information sheet (KIIS) for crowdfunding offers. The KIIS should contain, among other things, information on the crowdfunding project, the conditions for raising capital/borrowing, risk factors and other aspects. In principle, the crowdfunding service provider must publish the KIIS in one of the languages accepted by its home Member State authority. However, if a crowdfunding service provider also targets investors in other Member States with a crowdfunding offer (e.g., through marketing), it must also publish the KIIS in at least one language accepted by the host Member State authority. The languages accepted by the respective authorities will be published by ESMA on a regular basis.
In addition to the required language version for the respective country, the crowdfunding service provider can also provide additional translations.
The ECSPR provides that Member States shall have a liability regime for natural and legal persons responsible for the information given in a KIIS. This also includes translations. The responsible persons should be liable to investors if the information in the KIIS is misleading or inaccurate or, if important information is missing in the KIIS. Important information is information that would be necessary to assist investors in considering whether to fund the crowdfunding project.
In Germany, the liability regime was implemented in the Securities Trading Act (WpHG). According to this, the project owner as well as the members of its governing bodies responsible for this KIIS are liable to the investor in case of a false KIIS. Liability is limited to intent and negligence. Whether these liability rules only apply to offerings via German crowdfunding platforms is an important question. It is likely that the liability rules designed to protect German investors will apply whenever a German investor is approached - even if the project owner and the crowdfunding service provider are located in other EU countries.
For the German crowdfunding service provider who wants to offer crowdfunding services in the Netherlands in our example above, the question also arises whether, if applicable, Dutch liability rules apply in addition to German liability rules. In the worst case, the cross-border crowdfunding service provider will be affected by several liability regimes.
Our financial regulation experts combine pragmatism and an interest in innovative solutions with technical know-how. In our daily dealings with German and European regulators, we navigate our clients safely through all registration and licensing procedures and are always up-to-date on new procedures and regulatory practices. We are happy to advise you on this.
For more information on the ECSPR, read our ECSPR Guide.
Oct 02 2023
Sep 29 2023