EU Proposes Cross-Border Crowdfunding Regime In Fintech Push

The European Commission has unveiled a financial technology (fintech) action plan that includes a cross-bloc “passport” for crowdfunding platforms.

The scheme arrives at a time when the European Union is seeking to make member states more attractive to the fintech sector ahead of Britain’s exit from the EU next year.

The Commission said the plan was aimed at helping the EU “become a global hub for fintech”.

To date the UK has led Europe in financial technology, with the City of London attracting most of the capital flowing into the sector.

Pan-EU scheme

But Brexit casts some uncertainty over that position, since the country doesn’t currently have new structures in place governing how financial firms based in the UK will be able to trade with other European countries.

In the UK some fear Brexit could prompt companies and staff to relocate elsewhere, which would be an opportunity for rival capitals.

The proposal unveiled on Thursday would allow crowdfunding firms to offer their services across the EU by giving them the option of applying for an international “passport” from the European Securities and Markets Authority.

The scheme would allow firms to bypass the widely varied national regulations currently in place that apply to crowdfunding, and instead deal with a single pan-EU set of rules. The UK already has a crowdfunding licensing regime of its own.

The plan also aims to make it easier for financial firms to take advantage of new technologies including blockchain-style distributed ledger systems, artificial intelligence and cloud-based systems.

Only the crowdfunding provision, however, was presented in the form of draft legislation.

“An EU crowdfunding license would help crowdfunding platforms scale up in Europe,” said Valdis Dombrovskis, the EU’s financial services commissioner, in a prepared statement. “It will help them match investors and companies from all over the EU, giving more opportunities for firms and entrepreneurs to pitch their ideas to a wider base of funders.”

Dombrovskis said it was more important for the EU to work to “develop capital markets” now that its largest market, the UK, is leaving the bloc.

“Instead of having to comply with different regulatory regimes, platforms will have to comply with only one set of rules, both when operating in their home market and in other EU member states,” the Commission stated. “For investors the proposal will further provide legal certainty as regards the applicable investor protection rules.”

In their current form, the rules would cover crowdfunding campaigns of up to one million euros over 12 months, with sums higher than that covered by the EU’s existing securities regulations.

They include investor protection measures, with EU regulators given powers to fine or withdraw authorisation from companies who contravene the rules.

EU member states and the European Parliament must approve the proposals before they can become law. Law firm Linklaters estimated any new regulations would be unlikely to come into force before late 2022.

Fintech laboratory

The Commission’s plan also includes hosting an EU fintech laboratory that would give European and national regulators a forum for engaging with technology providers, workshops aimed at improving cybersecurity information sharing, and a blueprint for best practices on regulatory sandboxes.

Sandboxes would allow fintech startups to carry out live experiments under regulatory supervision.

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