The European market for crowdfunding has seen rapid growth in recent years and will likely grow further. Crowdfunding enables companies – mainly start-ups or growing businesses – to raise money from a large number of people via online platforms as an alternative and innovative way of sourcing funding for their business and/or new projects. It also enables large corporates to bring in extra money to finance innovation and boost their customer engagement.
But what does crowdfunding provide that other forms of finance do not?
Essentially, it is about the lower barriers to entry, in a far bigger marketplace than ever before. The internet does in fact take some of the pain out of business finance, which was previously accepted as an unavoidable cost of doing business. At the same time, this also allows small investors to benefit from the vibrant start-up ecosystem.
The new EU regulation on crowdfunding for businesses was published in 2020 and entered into force in 2021. The primary objective of the Regulation is to promote and foster the cross-border provision at EU level of lending-based and equity-based crowdfunding services. It introduces a single set of requirements applicable to crowdfunding service providers across the EU, including strict rules to protect investors, a harmonised investor disclosure regime, as well as a suitability and appropriateness test. Based on its provisions, it has the potential to bridge significant divergences in national regimes on crowdfunding in different Member States to explore the full potential of the EU Single Market.
Furthermore, platforms already operating under national regimes have been provided with a 12-month transitional period to ensure compliance with the new rules. In this respect, in Malta there was no national regime and no Maltese entities which provided such crowdfunding services.
In view of the above, a number of local Regulations have been issued in the last two years:
- The Directive amending MiFID II was transposed in Subsidiary Legislation 370.02, Investment Services Act (Exemption) Regulations, in July 2021;
- In December 2021, the Malta Financial Services Authority Act (European Crowdfunding Service Providers For Business) Regulations (S.L. 330.15) was published under the MFSA Act (Cap. 330), among other matters, designating the MFSA as the national competent authority vis-à-vis the ECSPR;
- Last January, Crowdfunding Rules were issued in terms of S.L. 330.15. Chapter 1 highlights the relevant technical standards to be issued in terms of the ECSP Regulation, while Chapter 2 sets out the marketing requirements that will apply to Crowdfunding Service Providers promoting their crowdfunding services through marketing communications to clients in Malta;
- The proposed Legal Notice and Consultation Paper containing the fees for ECSPs were published in May this year, followed by the consultation feedback which was made available online in the following month.
While certain details remain to be ironed out, effectively, a prospective applicant may already submit an application for a crowdfunding service provider and provide services across all EU member states.