Crowdfunding is currently enjoying extraordinary popularity in the business world. Until recently, however, it lacked comprehensive legal regulation, whether at the national or European level. Thanks to Regulation (EU) 2020/1503 of the European Parliament and of the Council of October 7, 2020, on European business crowdfunding service providers and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (hereinafter referred to as the “Regulation on European Crowdfunding Service Providers for Business”), crowdfunding will become a legally regulated activity.
The clear intention of European lawmakers to regulate the activities of entities operating crowdfunding platforms was already evident in the proposal for a Regulation of the European Parliament and of the Council on European Crowdfunding Service Providers (ECSP) for Business of March 8, 2018 (see the article Crowdfunding: Crowdfunding and Planned Legislative Changes). This legislative intent was incorporated into Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European business crowdfunding service providersand amending Regulation (EU) 2017/ 1129 and Directive (EU) 2019/1937 (hereinafter referred to as the “Regulation on European business crowdfunding service providers”) more than two and a half years after the adoption of its proposal and just a few days after the adoption of the proposals for three regulations and one directive comprising the so-called Digital Finance Package, which aims to regulate crypto-asset markets, introduce a pilot regime for market infrastructures based on distributed ledger technology, and establish requirements regarding the digital operational resilience of financial institutions. The European financial sector, and particularly the area of innovative financing methods, is thus undergoing a “digital” regulatory revolution, a key component of which is the Regulation on European providers of crowdfunding services for business.
Until recently, the term “crowdfunding” did not have an established Slovak equivalent, or the Slovak term for this innovative form of financing was not used at all. However, the Regulation on European providers of crowdfunding services for business introduces, in Article 2(1)(a), a legislative definition of the term “crowdfunding service,” which, within the meaning of that provision, is “the matching of the interests of investors and project owners for business financing through the use of a crowdfunding platform, which includes any of the following activities:
- facilitating the provision of loans;
- ii) placing financial instruments without a firm commitment as referred to in point 7 of Section A of Annex I to Directive 2014/65/EU (MiFID II – ed.) in relation to transferable securities and instruments received for the purposes of crowdfunding issued by project owners or a special-purpose entity, and the receipt and transmission of client orders referred to in point 1 of that section in relation to the aforementioned transferable securities and instruments received for the purposes of crowdfunding;”
The term “crowdfunding services” naturally corresponds to the designation of the regulated entity, which will be the crowdfunding service provider—a legal entity providing crowdfunding services, primarily through a crowdfunding platform, i.e., a publicly accessible online information system. Customary practice in the area of financial market regulation automatically suggests that the National Bank of Slovakia will be the authority responsible for authorizing the activities of crowdfunding service providers and supervising them within the Slovak Republic; however, this may not necessarily be the case. Pursuant to Article 29 of the Regulation on European crowdfunding service providers for business, the Slovak Republic shall designate the competent authority responsible for carrying out the tasks and duties set out in this Regulation and shall inform the European Securities and Markets Authority thereof, and may designate more than one such authority. Given the nature of this Regulation, it can be assumed that the competent authority will be the Ministry of Finance of the Slovak Republic or the National Bank of Slovakia.
In the crowdfunding process, in addition to crowdfunding service providers, their clients—who are investors and project owners—also play a role. An investor, within the meaning of Article 2(1)(i), is “any natural or legal person who, through a crowdfunding platform, provides loans or acquires transferable securities or accepted instruments for the purposes of crowdfunding.” An interesting aspect in this regard is the distinction between “sophisticated” and “non-sophisticated”investors, whereby the definition of a sophisticated investor is linked to the definition of a professional client set forth in Section I, points 1, 2, 3, or 4 of Annex II to Directive 2014/65/EU (MiFID II – ed.) with the addition of another group of persons meeting the criteria under the procedure set out in Annex II of the said Regulation. A non-sophisticated investor is, as is customary in similar definitions within financial market regulation, an investor who is not a sophisticated investor. The project owner, in turn, is, within the meaning of Article 2(1)(h) “any natural or legal person seeking to obtain funding through a crowdfunding platform”, and a crowdfunding project is, within the meaning of point (l) of that provision, “a business activity or activities for which the project owner seeks to obtain funding through a crowdfunding offer.”
A key component of the legislator’s motivation for adopting the Regulation on European crowdfunding service providers for business, or the lowest tier of the hypothetical Maslow regulatory pyramid, is the protection of consumers (or investors), the effort to complete the capital markets union (primarily by eliminating differences between existing national rules that hinder the cross-border provision of services and cause fragmentation of the internal market), and the effort to facilitate access to financing for small and medium-sized enterprises, particularly through such an innovative form of financing, which, in addition to providing an alternative source of funding, can also offer businesses other benefits, such as validation of a business idea, access to a large number of people providing insights into information and know-how, and can also serve as a powerful marketing tool.
In light of the above, the team at Hronček & Partners, s. r. o. is ready to provide you with comprehensive legal advice on obtaining a license to provide crowdfunding services. You can find more information in our service portfolio under the section Other Services.
