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Crowdfunding Regulation

Crowdfunding (which can include, amongst other things, peer-to-peer (“P2P”) or marketplace lending) is an increasingly established, and popular, form of alternative finance for start-ups and small and medium-sized enterprises (“SMEs”).

Such funding takes place through online platforms, with relatively small investments from a large number of people, companies or institutional investors. Even in EU Member States where access to bank finance has remained stable throughout the COVID-19 crisis, lack of access to finance for SMEs, in particular, represents a problem given higher costs of borrowing and/or simply difficulty of accessing credit.

In recognition of the importance of crowdfunding, the lack of common rules across the EU and the development of the crowdfunding sector in general, the following pieces of legislation were published in the Official Journal of the EU on 20 October 2020 and will enter into force 20 days from that date:

a)  Regulation (EU) 2020/1503 (the “Crowdfunding Regulation”); and
b)  Directive (EU) 202004/1504 (the “MiFID II Amending Directive” or the “Directive”).

The Crowdfunding Regulation will apply from 10 November 2021. Member States are required to adopt and publish the necessary laws, regulations and provisions to give effect to the Directive by 10 May 2021, and to apply those measures from 10 November 2021.

The Directive excludes European Crowdfunding Service Providers (“ECSPs”) covered by the Crowdfunding Regulation from the scope of MiFID II, in order to avoid their being subject to two regulatory regimes at the same time. The rest of this update relates to the provisions of the Crowdfunding Regulation. Crowdfunding is not currently a regulated activity in Ireland, and no Irish legislation applies directly to crowdfunding services being carried on in Ireland at present. However, certain other activities of a crowdfunding platform might constitute the provision a regulated service, such as payment services or MiFID investment services.

Who is Covered?

The Crowdfunding Regulation will apply to:

​a)  P2P crowdfunding platforms facilitating ‘business funding’ (lending to consumers is excluded); and
b)  investment-based crowdfunding platforms in relation to transferable securities only.

It will apply to all ECSPs in respect of offers of up to €5,000,000, calculated over a period of 12 months per project owner (borrower); offers above that threshold will be regulated by MiFID II and the Prospectus Regulation.

If an ECSP is also carrying on a payment service in the course of providing the crowdfunding platform, it may be required to be separately authorised under the Payment Services Directive (“PSD”) and exercise the passport under the PSD, unless the payment service will be performed by an appropriately authorised third party provider.

Authorisation and Supervision

Prospective ECSPs must apply for authorisation to the designated competent authority in the Member State in which they are established, providing: name; legal form; constitutional documents; programme of operations; description of governance arrangements and details of policies in relation to risk assessment, complaints handling, business continuity and other matters; and details of the natural persons responsible for the management of the ECSP.

The competent authority must provide a decision within three months of receipt of the application, refusing or granting authorisation.  ESMA must be informed of all authorisations and will maintain a public register of all authorised ECSPs across the EU.  Article 12 of the Crowdfunding Regulation sets out in further detail the authorisation process and timelines for legal persons who intend to provide crowdfunding services.

ECSPs will be subject to ongoing supervision by the relevant competent authority and will need to provide an annual report.  Authorisation can be withdrawn if, among other things, the ECSP is not providing services or no longer meets the conditions for authorisation.

The Crowdfunding Regulation also contains provisions relating to passporting, such that an ECSP authorised in an EU Member State will be able to passport its services into other Member States.

Operational Requirements

The Crowdfunding Regulation places new obligations on ECSPs, including:

a)  a duty to act honestly, fairly, professionally and in the best interests of investors;
b)  a requirement to exercise effective and prudent management and adopt risk assessment and risk management procedures and policies;
c)  a minimum level of due diligence in relation to the project owners;
d)  effective and transparent procedures in relation to complaints handling, whereby clients can file complaints free of charge using a standard template; and
e)  ​avoiding conflicts of interest.

Investor Protection

Marketing communications from ECSPs must be clearly identifiable as such and be fair, clear and not misleading.  Investors must be provided with a key investment information sheet that includes details of the project, a responsibility statement by the project owner, charges that may be incurred, details of the crowdfunding process and descriptions of risk factors (including financial risks) and investors’ rights.

ECSPs are required to assess whether and which services offered on their platforms are suitable for non-sophisticated investors.  In order to carry out this assessment, an ECSP must request information from non-sophisticated investors and each assessment must be reviewed every 2 years.  A non-sophisticated investor may revoke any offer to invest within 4 calendar days of the making of that offer.


Given the exponential growth of crowdfunding platforms across Europe over the last few years, the Crowdfunding Regulation is to be welcomed as it should address the current fragmentation of the legal framework applicable to ECSPs operating across the EU, especially those ECSPs that may wish to operate in another Member State, while also enhancing investor protection as well as market efficiency and contributing to the establishment of the Capital Markets Union.

For further information, please contact  Turlough GalvinPatrick MolloyAlan KeatingDonal O’DonovanDavid O’MahonyJoe BeashelRory McPhillipsStuart KennedyYvonne McWeeneyChristian DonaghRichard Kelly or your usual Matheson contact.