Explanatory Memorandum to COM(2018)113 - European Crowdfunding Service Providers (ECSP) for Business - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2018)113 - European Crowdfunding Service Providers (ECSP) for Business. |
|---|---|
| source | COM(2018)113  |
| date | 08-03-2018 |
1. CONTEXTOFTHEPROPOSAL
• Reasons for and objectives of the proposal
The Commission has today adopted a package of measures to deepen the Capital Markets Union, together with the Communication "Completing Capital Markets Union by 2019 – time to accelerate delivery". The package includes this proposal, as well as a proposal for an enabling EU framework on covered bonds, a proposal to facilitate the cross-border distribution of investment funds, a proposal on the law applicable to the third-party effects of assignments of claims and a Communication on the applicable law to the proprietary effects of transactions in securities.
This initiative is part of the Commission's priority of establishing a Capital Market Union (CMU), which aims to broaden access to finance for innovative companies, start-ups and other unlisted firms.1
Today, access to finance remains difficult for these firms, particularly when they move from a start-up into the expansion phase, due to structural information asymmetries. Over-reliance on short-term unsecured bank lending is often expensive. In addition, bank lending volumes to both start-ups and SMEs have been severely affected by the 2008 financial crisis and still struggle to reach pre-crisis levels, making the lack of funds an important contribution to startups' failures. These issues are significantly enhanced in Member States with less developed capital markets and banking system.
As a new form of technology-enabled financial service, crowdfunding carries the potential to help better match investors with business projects in need of funding. Crowdfunding platforms act as intermediaries between investors and businesses, allowing investors to more easily identify and support projects they are interested in. Crowdfunding can become an important source of non-bank financing and thus further the CMU overarching goals of supporting a more sustainable financial integration and private investments for the benefit of job creation and economic growth. Crowdfunding is increasingly establishing itself as an important part of the funding escalator for start-ups and early stage companies, usually financed by family, friends and own funds up to later development rounds where venture capital or even private equity funds start taking interest. Crowdfunding can thus provide an alternative to unsecured bank lending, which are currently the main sources of external finance for SMEs, especially during the initial period of activity.
The Commission Services have been monitoring crowdfunding market developments for some years. A Communication published in 20142 and a staff working document published in May 20163 concluded that there was no strong case for EU level policy intervention at that juncture. Meanwhile, the Commission Services committed to monitor this market and, since
The European Parliament resolution of 9 July 2015 on Building a Capital Markets Union also states that 'the CMU should create an appropriate regulatory environment that enhances cross-border access to information on the companies looking for credit, quasi-equity and equity structures, in order to promote growth of non-bank financing models, including crowdfunding and peer-to-peer lending'. European Parliament resolution of 9 July 2015 on Building a Capital Markets Union (2015/2634(RSP)), par. 47. Available at www.europarl.europa.eu/sides/getDoc.do?pubRef=-/%2BTA%2BP8-TA2015-0268%2B0%2BDOC%2BPDF%2BV0//E">www.europarl.europa.eu/sides/getDoc.do?pubRef=-/+TA+P8-TA-2015-0268+0+DOC+PDF+V0//E
Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Unleashing the potential of Crowdfunding in the European Union, COM(2014) 172 final, 27.3.2014. SWD(2016) 154 final, available here:
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then, have gathered significant evidence on barriers to cross-border activity and the development of the internal market through stakeholder consultations and external studies. Moreover, the continued concentration of the European crowdfunding sector in a few Member States has underlined the need to make this funding method available more widely for the benefit of fund seekers and investors in all Member States.
This proposal establishes a European label for investment- and lending-based crowdfunding platforms that enables cross-border activity and seeks to address risks in a proportionate manner. The proposal seeks to facilitate the scaling up of crowdfunding services across the internal market thereby increasing access to finance for entrepreneurs, start-ups, scale-ups and SMEs in general. This is why donation and reward based crowdfunding are excluded from the scope of this initiative. The inclusion of those business models would be disproportionate as they do not deal with financial products and the information asymmetries that these products create. Moreover, EU consumer protection legislation already applies to reward-based crowdfunding with strict rules to safeguard consumers.
This proposal does not apply to those services provided to project owners qualifying as consumers as defined in Article 3(a) of Directive 2008/48/EC. Therefore, the proposal does not include consumers lending for consumption purposes as this is not business lending and it partially fall within to the scope of existing EU legislations, specifically: (i) when a consumer is receiving a loan for personal consumption and operating outside of professional capacity this activity falls within the remit of the Consumer Credit Directive; and (ii) in case of a consumer receiving a loan to purchase an immovable property, this activity falls within the remit of the Mortgage Credit Directive.
This proposal also seeks to empower investors with the necessary information on crowdfunding, including the information on the underlying risks. To support investors' trust in these innovative services, this proposal also requires crowdfunding service providers to have the necessary safeguards in place to minimise the likelihood of risks materialising.
• Consistency with existing policy provisions in the policy area
Provision of crowdfunding services has not been subject so far to a targeted EU action. Crowdfunding service providers have been adapting their business models to very different national frameworks and are subject to the implementation of existing EU and national regimes by national competent authorities. The dynamic nature of business models and different interpretations across Member States of existing EU legislation has led to a large variety of regulatory frameworks for crowdfunding service providers ranging from no regulation to strict application of investor protection rules. Some Member States have to date introduced national bespoke regimes for crowdfunding, while others require crowdfunding platforms to get licensed and operate under existing EU frameworks, such as the Markets in Financial Instruments Directive (MiFID II), the Payment Services Directive (PSD) and the Alternative Investment Fund Managers Directive (AIFMD).
This proposal for a European crowdfunding legal framework does not intend to interfere with national bespoke regimes or existing licenses, including those under the MiFID II, the PSD or the AIFMD, but rather to provide crowdfunding service providers with the possibility to apply for an EU label that empowers them to scale up their operations throughout the Union under certain conditions.
• Consistency with other Union policies
The proposal aims to broaden access to finance for innovative companies, SMEs and other unlisted firms, in line with the Commission's priority of establishing a CMU. By allowing platforms to scale up their operations across the European market the proposal seeks to
provide start-ups and SMEs with access to alternative sources of capital in line with other initiatives that have sought to facilitate access to finance for these entities, such as the framework for European Venture Capital Funds.
The initiative is also part of the European Commission's FinTech Action Plan, designed to better understand and enable technology to support the financial services sector. In effect, the financial services sector is the largest user of digital technologies and represents a major driver in the digital transformation of our society. These new technologies are changing the way consumers and firms access services, as well as improving the ability to understand and measure risks. The Commission aims to opt for a more innovation-oriented approach to FinTech by facilitating a regulatory environment where innovative financial services, products and solutions can be rolled out across the EU in a safe, financially stable environment for investors and firms alike.
2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY
• Legal basis
The legal basis for this proposal is Article 114 of the Treaty on the Functioning of the European Union (TFEU), which allows the adoption of measures for the approximation of national provisions having as their object the establishment and functioning of the internal market.
Currently crowdfunding cannot reap the benefit of the internal market due to the absence of a dedicated and coherent regulatory and supervisory regime. While some Member States apply the current financial services framework to crowdfunding service providers, others allow them to stay outside the regulatory regime whilst operating under exemptions, as relevant to the specific business model. Meanwhile, an increasing number of Member States are implementing bespoke national frameworks to cater specifically for crowdfunding activities.
The divergent frameworks, rules and interpretations of business models applied to crowdfunding service providers throughout the Union thus hinders the potential scaling up of crowdfunding activity at EU level. Large differences in regulatory standards and divergent legislative scopes adopted by Member States pose a barrier for crowdfunding platforms scaling their operations across the EU as their business models would have to be adjusted according to each jurisdiction, frequently require multiple national authorisations or registrations and compliance with divergent national laws, among others in the field of marketing and consumer protection. This results in high costs, legal complexity and uncertainty for crowdfunding service providers is responsible for causing unnecessary market fragmentation as well as a lack of economies of scale and inconsistent approaches to transparency and financial risks. These divergences represent an obstacle to the establishment and smooth functioning of the internal market.
This situation restricts crowdfunding platforms' capacity to penetrate other EU markets beyond the national market and limits crowdfunding service providers' financial incentives only to larger EU countries with sufficient market size. This, in turn, restricts the capacity to develop an integrated EU internal market for crowdfunding services.
At the same time, investors have limited accessibility and ability to diversify risk in the same way due to the lack of a internal market. There are important and innovative sectors, like technology, whereby the geographical proximity is not a key factor to invest, hence the reliance on an international investor base. International investors struggle to emerge on European crowdfunding platforms due to the cross-border barriers highlighted above, despite
the fast growth of domestic markets. As a result, the difficulty for investors to engage crossborder generates additional search costs and restricts the free flow of capital within the Union.
It has been observed that a number of firms resort to incorporating a legal entity and raising funds in countries with developed crowdfunding markets. While this could also be influenced by other factors, such as the local financial ecosystem, it means that small businesses in sectors with low mobility of production factors would not be able to access these funding opportunities, unless an efficient domestic crowdfunding market already exists. Hence, the inability of platforms and investors to move cross-border may inhibit access to finance for companies in a large set of sectors.
These divergences also create an uneven playing field for platform providers depending on their location, by fragmenting funding models along national lines, thus erecting additional barriers to a internal market in crowdfunding services. Key drivers include different interpretations and treatment of crowdfunding service providers, as well as the additional mistrust that this creates for investors in a cross-border setting as regards uncertainty and high search costs. More importantly, such divergent interpretations and treatment of the crowdfunding services create substantial legal uncertainty for retail investors, who remain discouraged from crowdfunding services in the light of weak or uncertain protection of their rights, legal recourse and lack of transparency in terms of pricing and charges associated to investments in the projects.
Through the introduction of uniform conditions of operation for firms within the EU, the proposal overcomes the differences in national legal frameworks which led to market fragmentation at EU level, reducing significantly the complexity, financial and administrative burdens for all key stakeholders, i.e. crowdfunding platforms, project owners and investors. At the same, it ensures a level playing field among all the service providers using the same EU label.
• Subsidiarity
Under Article 4 TFEU, EU action for completing the internal market must be appraised in the light of the subsidiarity principle set out in Article 5(3) of the Treaty on European Union (TEU). It must be assessed whether the objectives of the proposal could not be achieved by the Member States in the framework of their national legal systems and, by reason of their scale and effects, are better achieved at EU level.
The varying approaches taken by the Member States and their different interpretations of crowdfunding activity have been increasingly amplifying the outlined issues. As bespoke national regimes are the major hurdle for platforms and result in further market fragmentation, the objectives cannot be reached through individual action by the Member States.
The Commission Services have been monitoring the market for a number of years and have recognised increasing divergence and amplification of problems that warrant EU-level intervention. Evidence collection through studies and public consultations has shown strong support for action. There is no coordination effort undertaken so far among Member States on rules for lending services by non-deposit-taking institutions and the application of MiFID rules to investment-based crowdfunding platforms remains insufficiently uniform to enable cross-border activity. Action taken by the Member States can only remedy their own market, which would not be sufficient to reduce the negative impact on the functioning of the internal market.
This situation restricts access to early stage capital markets financing only to bigger EU countries and investors have limited accessibility and ability to diversify risk in the same way
irrespective of where they are geographically located. Providing an EU-level framework would ensure the possibility to passport crowdfunding activities throughout the internal market. This would result in more competition between crowdfunding service providers and would allow Member States with small internal markets to develop alternative funding sources. It would also provide start-ups and SMEs with more capital and allow investors access to an alternative asset-class.
• Proportionality
Under the principle of proportionality, the content and form of EU action should not exceed what is necessary to achieve the objectives of the Treaties.
Today, crowdfunding service providers wishing to offer their services in other Member States are allowed to do so, in so far as they obtain a local license and comply with that Member State's national crowdfunding regime. In practice, this means that a crowdfunding service provider has to comply simultaneously with several national regimes as well as adapt its business model if it wishes to offer services cross-border. This significantly hinders crowdfunding service providers' ability to scale their offering at EU level.
Provision of crowdfunding services focuses on smaller capital raising activities for projects, early stage start-ups and SMEs. However, in some Member States, providers have to apply the existing sectorial legislation, such as MiFID II and MiFIR. Those rules might be disproportionate for small activities. Furthermore, these rules may not be fit for purpose. Crowdfunding encompasses many different business models, which might not all be addressed, and could therefore have unpredictable regulatory spill-over effects. As a result, it may not be possible to capture, in a proportionate way, a growing number of platforms mixing different business models, which may involve lending and investment-based dealings.
A stand-alone voluntary European crowdfunding regime under the label of a European Crowdfunding Service Provider, which platforms would choose when wishing to conduct cross-border business would leave the tailored national crowdfunding frameworks unchanged, whilst providing an opportunity for platforms that want to scale their operations at a European level and wishing to conduct cross-border business. This would determine a rather swift and sizeable reduction of market entry costs (regulatory and supervisory costs) for crowdfunding platforms operating (or intending to operate) cross-border, since they would only be authorised once. At the same time, the regime would be more proportionate than in the case of the MiFID rules. The proposed regime oriented towards the provision of services would also allow for flexibility in capturing platform activities combining multiple business models, as it provides a single regime that applies to both investment-based and lending-based models (reducing regulatory uncertainty). The approach would also ensure that the regime is future-proof in light of rapid development within the sector and the use of different instruments.
The preferred option would be also coherent with the legislative framework, as it allows coexistence of established financial frameworks with this regime, with a carve out in line with the parameter of EUR 1 million set in another key piece of EU law, and notably Regulation (EU) No 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market.4 This approach would minimise risks of regulatory arbitrage, while enabling cross-border activities in line with a solid investor protection and financial stability framework.
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• Choice of the instrument
Article 114 TFEU allows the adoption of acts in the form of a regulation or directive. A regulation was selected here as an 'EU label' must be directly applicable in all Member States in order to be effective.
Second, as the proposed Regulation establishes harmonised requirements for crowdfunding platforms wishing to apply for a respective authorisation, it must not be subject to specific national rules. Therefore, in this case a Regulation is more appropriate than a Directive. However, any features that fall outside the scope of the proposal would be subject to national rules, including those transposing the provisions of the applicable EU Directives.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER
Contents
ANDIMPACTASSESSMENTS
Stakeholder
consultations
Responses to the Commission's public consultations on Crowdfunding in 2013, the CMU Green Paper in 2014, the CMU Mid-Term Review in 2017 and the FinTech consultation in 2017 have provided qualitative evidence to support development of an impact assessment. Respondents to the CMU Green Paper consultation identified a number of barriers to the development of appropriately regulated crowdfunding platforms: regulatory barriers, poor availability and quality of information, and other barriers such as a lack of secondary markets and taxation barriers. Some respondents considered that EU intervention would facilitate cross-border transactions at lower costs. Many respondents to the CMU Mid-Term Review consultation made similar statements arguing in favour of the development of a proper legal framework for crowdfunding across the EU to ensure appropriate investor and consumer protection, so as to create a market of sufficient size.
The Commission carried out a public consultation on Fintech: a more competitive and innovative European financial sector. The public consultation received a total of 226 responses covering individuals, industry (from a significant variety of market participants), national and European regulators and supervisors, users and trade unions. A summary of the contributions together with a detailed summary of individual responses to the public consultation were published on 12 September 2017. Respondents generally considered that national regulatory regimes for crowdfunding in Europe have a direct impact on the development of the crowdfunding sector. This belief was shared across the board by all types of respondents (private individuals, private organisations, public authorities and international organisations). Almost half of the respondents who expressed an opinion on the matter believed that national regulatory regimes hindered cross-border crowdfunding activity and that harmonisation at the EU level was required. These also pointed out that the European market was fragmented due to divergences in the regimes adopted by different Member States. Furthermore, some argued that hindering cross-border activity by juxtaposing national regulations impeded real competition, and made it difficult and more costly for platforms to scale up and reach the necessary size to be profitable in the longer term.
In addition, the Commission services have conducted a series of workshops consulting with Member States, trade bodies and their members. Three regulatory workshops on crowdfunding with Member States were held in December 2014, February 2016 and November 2017, in the framework of the Expert Group of the European Securities Committee (EGESC). Experts pointed to a number of issues that could be addressed in order to avoid legal barriers and promote crowdfunding activity in the EU, such as information sharing, data gathering, establishing a common taxonomy, supporting passporting, and more convergent
information disclosure requirements for securities issues below the prospectus threshold. The Commission services have also set up a European Crowdfunding Stakeholder Forum (ECSF) in 2015 as the expert group of representatives of associations of concerned stakeholder groups and national authorities. Finally, a workshop was held on cross-border crowdfunding in June 2017 on the study 'Identifying market and regulatory obstacles to the cross-border development of crowdfunding in the EU'.
• Collection and use of expertise
The proposal draws on an extensive amount of desk research, external studies, targeted consultations, interviews, focus groups, workshops and other. The material used had been gathered since the Commission Services started monitoring the market in 2013. This includes meetings with stakeholders, studies carried out on behalf of the Commission and by industry stakeholders, staff working documents, opinions and advice by the supervising authorities, studies as well as academic research papers. A study was commissioned that focused on identifying the barriers to the cross-border provision of crowdfunding services.
• Impact assessment
This proposal is accompanied by an impact assessment that was submitted on 18th November 2017 and approved by the Regulatory Scrutiny Board (RSB) on 15th December 2017.
The RSB requested to amend the draft impact assessment to clarify (i) the rationale and urgency of the initiative and how the Commission position has evolved in recent years, together with explaining more the focus on the very early financing needs of innovative entrepreneurs, small businesses and start-up; (ii) the extent to which the proposal is forward-looking and capable of integrating future developments (iii) the importance of regulatory fragmentation in comparison to the barriers not addressed by the proposal; (iv) additional evidence on the demand for cross-border activity; (v) the interaction between the proposal and the existing EU sectorial and national legislation, and (vi) the justification for the choice of the relevant supervisor and the impact of the proposal on the European Securities and Markets Authority. The Impact Assessment has been amended accordingly.
The impact assessment concluded that EU crowdfunding markets for business finance are largely underdeveloped compared to other major economies but - and most importantly -unable to properly operate cross-border. Due to fragmented and conflicting regulatory regimes, crowdfunding platforms are unable to scale and freely provide their services on a pan-European level. Likewise, investors refrain from engaging cross-border due to a lack of trust in those platforms and their fragmented regulatory frameworks applicable to the service provision. In order to address these problems, the impact assessment identified and examined four policy options:
Baseline - No EU action.
Option 1 - Building on reputational capital: minimum standards with best practices
Option 2 - A product-based approach: bringing crowdfunding within the existing EU single rulebook
Option 3 - A complementary service-based solution: a regime for European Crowdfunding Service Providers
The first, baseline option analysed market developments in the case that no-EU action was taken. Without action, crowdfunding platforms will be even less able to scale up cross-border and the increasing conflicts between national regimes could create loopholes for investor protection and the integrity of the market.
The second option developed on the possibility of introducing minimum-harmonisation elements across the EU, to combine with best practices. This option was also not retained, as it would create undue regulatory uncertainty due to the self-regulatory enforcement mechanism and its interaction with national regimes already in place.
The third option looked into the case for introducing provisions for crowdfunding services under the current EU legislative framework, such as MiFID, and creating a stand-alone regime for lending-based crowdfunding service activities that currently do not have a European framework in place. This carving-in of the crowdfunding regime into the EU Single Rulebook was not retained because it is not as cost effective as other options, while achieving similar results in terms of integrity and transparency.
The fourth and preferred option considered the possibility of introducing an EU-label for crowdfunding service providers, which would be authorised and supervised at EU level under an EU regime. This option combines flexibility towards business models (that can freely choose either to opt for the EU label or to stay with the national regime) with proportionate investor protection and organisational rules. In addition, the comprehensive passporting regime also provides for a cost effective tool to scale up under a common framework, reducing regulatory uncertainty and lowering administrative burdens.
• Fundamental rights
The EU is committed to high standards of protection of fundamental rights and is signatory to a broad set of conventions on human rights. In this context, the proposal is not likely to have a direct impact on these rights, as listed in the main UN conventions on human rights, the Charter of Fundamental Rights of the European Union, which is an integral part of the EU Treaties, and the European Convention on Human Rights (ECHR).
4. BUDGETARYIMPLICATIONS
The preferred option holds implications in terms of costs and administrative burden for ESMA. The magnitude and distribution of these costs will depend on the precise requirements placed on ECSPs and the related supervisory and monitoring tasks.
Assuming that ESMA will be in charge of authorising and supervising 25 ECSPs in the first full year of implementation (2020), there will be a cost impact (net of fees charged on the industry) of approximately EUR 1 637 000 in that year. This estimate also includes half of EUR 500 000 in one-off costs to be split over the first two years, used to setup the necessary IT systems. Given that the European crowdfunding sector is still young and characterised mainly by small platforms with limited revenues, ECSPs' fees are capped to an appropriate threshold.
5. OTHERELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
Not applicable.
• Detailed explanation of the specific provisions of the proposal
The proposal seeks to establish uniform rules on crowdfunding at EU level. It does not replace national rules on crowdfunding where they exist. Under the proposal, a crowdfunding service provider can choose to either provide or continue providing services on domestic basis under applicable national law (including where a Member State chooses to apply MiFID II to
crowdfunding activities) or seek authorisation to provide crowdfunding services under the proposed Regulation. In the case of authorisation under EU rules, authorisation covers both the provision of services in a single Member State and on a cross-border basis. If the provider chooses to apply the EU rules, authorisation under the applicable national rules is withdrawn. Authorisation granted under this Regulation would allow crowdfunding service providers to provide crowdfunding services under a passport across all Member States.
Article 1 defines the subject matter; in particular, Article 1 sets out that the Regulation applies to crowdfunding service providers and establishes uniform requirements in relation to their operations, organisation, authorisation and ongoing supervision. Article 2 defines the scope of application, which is limited to those legal persons who choose to seek authorisation pursuant to Article 11 and to those who are authorised in accordance with that Article. It also provides for exemptions by virtue of which this Regulation should not apply to crowdfunding services that are provided to consumers, as defined in Article 3(a) of Directive 2008/48/EC, to crowdfunding services that are provided by legal persons that have been authorised as investment firms in accordance with Article 7 of Directive 2014/65/EU, or to crowdfunding service provided by natural or legal persons that have been authorised for that purpose by national law. It follows from this provision that persons authorised as crowdfunding service providers who wish to continue providing services beyond the scope of this Regulation, should no longer be able to operate under the authorisation granted pursuant to this Regulation. Such persons that provide investment-based cross-border crowdfunding services should seek an authorisation under Directive 2014/65/EU while their authorisation as a crowdfunding service provider under this Regulation should be withdrawn.
Article 3 sets out terms and definitions that are used for the purposes of this Regulation, in particular, 'crowdfunding services', 'crowdfunding platform', 'crowdfunding service provider', 'crowdfunding offer' and others. Importantly, the Commission may adopt delegated acts to specify further technical elements of the definitions laid down in Article 2 to take into account market developments, technological developments and experience.
Chapter II sets forth the provision of crowdfunding services (Article 4), effective and prudent management (Articles 5) and complains handling (Article 6). By virtue of those provisions, crowdfunding service providers must at all times comply with the organisational requirements, while natural persons having the power to manage a crowdfunding service provider should have appropriate skills and professional experience. With respect to conflicts of interest (Article 7), a crowdfunding service provider must maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest from adversely affecting the interests of its clients. Crowdfunding service providers are also required to take all appropriate steps to identify and to prevent or manage conflicts of interest between themselves, including their managers and employees, or any person directly or indirectly linked to them by control and their clients or between one client and another that arise in the course of providing any services. Rules regarding outsourcing and client asset safekeeping are set out in Articles 8 and 9.
Chapter III sets out provisions on authorisation and ongoing supervision requirements. More specifically, Article 10 provides for a requirement for authorisation and sets the authorisation conditions for crowdfunding service providers. In particular, crowdfunding service providers must satisfy a number of criteria in order to be authorised by ESMA. Article 10 also sets forth the procedures for granting and refusing applications for authorisation. Article 11 requires ESMA to establish a publicly available and up-to-date register of all crowdfunding service providers. Article 12 specifies that crowdfunding services must be provided under supervision by ESMA. Article 13 sets out provisions pertaining to the withdrawal of authorisation.
Chapter IV sets out provisions on investor protection and transparency. Pursuant to Article 14, all information, including marketing communications, from crowdfunding service providers to clients must be complete, clear and correct. Article 15 sets out an initial assessment of appropriateness of a potential client and provides that platforms shall offer investors the possibility to simulate their ability to bear losses. Article 16 elaborates on details and content, as well as form and other requirements of the Key Investment Information Sheet (KIIS). Article 17 and 18 deal, respectively, with the bulletin board and the right for the investor to access the records.
Chapter V sets out provisions regarding marketing communications. More specifically, Article 19 sets detailed requirements for marketing communications and Article 20 requires national competent authorities to publish and maintain on their websites national laws, regulations and administrative provisions applicable to marketing communications of crowdfunding service providers.
Chapter VI sets out detailed provisions on ESMA's powers and competences, legal privilege (Article 21), request for information (Article 22), general investigations (Article 23), on-site inspections (Article 24), exchange of information (Article 25), professional secrecy (Article 26), supervisory measures by ESMA (Article 27), as well as administrative sanctions and other measures, in particular, fines (Article 28), periodic penalty payments (Article 29), the disclosure, nature and enforcement of fines (Article 30) and the corresponding procedural rules for taking supervisory measures and imposing fines (Article 31).
Articles 32 and 33 set out requirements, respectively, with respect to hearing of persons concerned and the unlimited jurisdiction of the Court of Justice over ESMA's decisions. In accordance with Article 34, ESMA should be able to charge fees to the crowdfunding service providers in accordance with the Regulation and the delegated act adopted pursuant to the Regulation. Article 35 sets out the possibility for ESMA to delegate specific supervisory tasks to the competent authorities of Member States in accordance with the ESMA guidelines.
Crowdfunding, as any other financial service, may be exposed to money laundering and terrorism financing practices. Therefore, the Regulation provides for appropriate safeguards to minimise the risks that such practices are carried out. In particular, Article 9 requires that payments for crowdfunding transactions must take place via entities that are authorised under the Payment Service Directive (PSD) and, therefore, subject to the 4th Anti-Money Laundering Directive (AMLD), whether the payment is provided by the platform itself or by a third party. Article 9 also sets out that crowdfunding service providers must ensure that project owners accept funding of crowdfunding offers or any payment only via an entity authorised under the PSD. Article 10 introduces requirements for the good repute of managers, which include the absence of any criminal record under anti-money laundering legislation. Article 13 requires National Competent Authorities (NCAs), including national competent authorities designated under the provisions of Directive (EU) 2015/849, to notify ESMA of any issue that is relevant under the AMLD and involving a crowdfunding platform. ESMA may subsequently withdraw the license based on this information. Article 38 provides that with a view to further ensuring financial stability by preventing risks of money laundering and terrorism financing, the Commission should assess the necessity and proportionality of subjecting crowdfunding service providers to obligations for compliance with the national provisions implementing Directive (EU) 2015/849 in respect of money laundering or terrorism financing and adding such crowdfunding service providers to the list of obliged entities for the purposes of Directive (EU) 2015/849.
The exercise of the delegation with a view to adopt Commission's delegated acts is covered in Chapter VII. The proposal for a Regulation contains empowerments for the Commission to adopt delegated acts specifying certain details, requirements and arrangements as set out in the Regulation.