ECSPR – The transition period for Crowdfunding Service Providers

In a series of articles, we accompanied the final steps to application and reported on the scope of application of the ECSPR and the permission requirement for crowdfunding service providers; the ongoing requirements for crowdfunding service providers and their conduct obligations; the treatment of crypto-tokens under the ECSPR; the structures of crowdfunding platforms previously found in Germany under the ECSPR; the money laundering obligations of a crowdfunding service provider; and the design of the key investment information sheet. In another series, we will follow the transition period of the ECSPR until 10 November 2022; the first article on this dealt with the ESMA’s publication of reporting by national supervisory authorities.

Now, in practice, the question arises as to how crowdfunding service providers can handle the transition between the old national crowdfunding regime and the regulations of the ECSPR best.

1. Basic regulations of the ECSPR

The ECSPR lays down basic rules on its entry into force and the date of applicability. It provides a transition period to allow crowdfunding service providers to adjust to the new requirements and apply for a license. The transition period started on 10 November 2021 and is to run (initially) until 10 November 2022. Crowdfunding service providers will therefore not have to comply with the requirements of the ECSPR until 10 November 2022 or from the date of obtaining license under the ECSPR. The earlier of the two dates is deemed to be the decisive date. This means that for the time being, crowdfunding service providers can continue to provide crowdfunding services under the previously applicable national regulations. The main German regulations are set out in the German Banking Act/Investment Firm Act (Kreditwesengesetz/Wertpapierinstitutsgesetz), the German Trade Regulation Ordinance (Gewerbeordnung) and the German Asset Investment Act (Vermögensanlagegesetz).

The European Commission may extend the transitional period once by 12 months.

2. The license requirement in the transition

Currently operating crowdfunding service providers can now submit their license applications to the national supervisory authorities, in Germany the BaFin. The first crowdfunding service providers have already done so. It can be assumed that the transitional period until 10 November 2022 should be sufficient for BaFin to process the applications and grant the license. The particular difficulty, however, is that the EU delegated acts still exist only as draft regulatory technical standards of ESMA and have not yet been officially adopted by the European Commission.

Until the granting of the licence (or 10 November 2022), it remains the case that these crowdfunding service providers (depending on the structure of their activities) require and must maintain a licence under the German Banking Act/Investment Firm Act or the German Trade Regulation Ordinance.
ESMA's Q&As on the ECSPR clarify that the transitional regime only applies to previously operating crowdfunding service providers. If someone wants to take up the activity for the first time, he must first successfully go through the license procedure.

3. Prospectus obligations in transition

For crowdfunding offers, either investor information for asset investments (i.e. asset investment information sheets (VIB) or asset investment prospectuses) or securities (i.e. securities information sheets (WIB) or securities prospectuses) are currently prepared under German law. These must meet the requirements of the German Asset Investment Act or the EU Prospectus Regulation in conjunction with the German Securities Prospectus Act.

Under the ECSPR, crowdfunding service providers must provide potential investors with an key investment information sheet prepared by the project owners for each crowdfunding offering. The ECSPR and the draft regulatory technical standards prepared by ESMA impose certain requirements on the key investor information sheet. These differ in content from the requirements for asset investment information sheets (VIB), asset investment prospectuses, securities information sheets (WIB) and securities prospectuses. This poses a particular difficulty for crowdfunding service providers who are still in the licensing process.

From the time license is granted, the provision of previous investor information (such as the VIB) does not meet the legal requirements. Ongoing offers must be interrupted and a key investment information sheet must be published in accordance with the requirements of the ECSPR. The challenge is increased by the fact that it is not a fixed date from which the key investment information sheets are required, but this is linked to the individual date of the granting of license by the supervisory authority. There are no transitional provisions or regulations to protect the status quo, as was the case with the German Retail Investor Protection Act (Kleinanlegerschutzgesetz).

We therefore recommend that crowdfunding service providers discuss this problem with BaFin in the licensing procedure and, in case of doubt, prepare two investor information sheets for an offer, one under the previous legal situation and one key investment information sheet.

4. You have questions about the permission as a crowdfunding service provider?

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.