Unified Regulations Impacting Business Crowdfunding in the EU

All business crowdfunding platforms wanting to operate in the European Union (EU) have to comply with new EU-wide regulatory rules.

Crowdfunding platforms previously approved to operate had until today to get authorization under the new rules. With the previous regulations, companies had to seek approval in each EU country, making cross-border crowdfunding difficult.

The many forms of crowdfunding

There are many types of crowdfunding, including “reward-based,” for new products; “donation-based” for charitable causes; “equity-based” for companies seeking funds; and “lending-based” for businesses or individuals to borrow money.

Crowdfunding provides an alternative to traditional fundraising from banks or institutional investors, enabling anyone to raise small amounts of money from various sources. However, different countries have different rules for various types of crowdfunding, complicating an industry that relies on an international medium.

Previously, the EU had regulated crowdfunding on a country level, making cross-border campaigns difficult. The European Crowdfunding Service Provider Regulation (ECSPR) addresses this problem by combining and standardizing rules for business-focused crowdfunding platforms.

While platforms still have to register with a national body, they can now operate across the entire EU once they receive approval.

Companies in the EU can raise up to €5 million from retail investors under the new regulations in a single offering.

There is, however, an exemption for professional “sophisticated” investors from these limits.

Consultation

The initial consultation addressing the fragmented EU market started in 2013, with the regulations finally adopted in 2020. These regulations solely focus on equity and lending-based crowdfunding for businesses.

Companies that previously operated on a country-by-country basis had to reapply under the new EU-wide regulatory framework by November last year, though the deadline has been extended to today.

Wefunder and Crowdcube both expanded to the EU after gaining authorization through these regulations.

Crowdcube’s co-CEO sees the rule changes as good news for businesses seeking capital, as it has created a significant first-mover advantage for the company to scale up its operations in EU markets quickly and efficiently.