Crowdfunding: New Regulation and Market Growth

The Crowdfunding Regulation (Regulation EU/2020/1503) (the Regulation) became effective across the EU on 10 November 2021.

Under the Regulation, Crowdfunding Service Providers (CSPs) are excluded from MiFID II. 

The Regulation applies to crowdfunding services related to business financing for both:

• Investment-based crowdfunding (also known as equity-based crowdfunding or crowdinvesting) 
• Lending-based crowdfunding (also known as peer-to-peer lending)

The Central Bank of Ireland (CBI) is Ireland’s designated competent authority for carrying out the Regulation. CBI’s authority includes:

• Authorisation of CSPs
• Withdrawal of authorisation
• Informing the ESMA (eg, authorisations granted, lists of projects funded)
• Supervision (eg, determining the frequency and depth of a compliance assessment)
• Power to suspend or prohibit crowdfunding offers 
• Power to transfer an existing contract to another CSP

Transition period

• Existing CSPs can continue their crowdfunding service under national law until 10 November 2022 or until CBI authorisation is granted, whichever is sooner
• New CSPs must obtain prior authorisation.

The key provisions of the Regulation include:

• Requirements for effective and prudent management (eg segregation of duties and prevention of conflicts of interest in a way that protects the market and clients)
• Requirements for due diligence on project owners
• Requirements for effective and transparent complaint handling procedures
• CSPs remain fully responsible regarding outsourced activities
• Requirements for prudential safeguards
• Requirements for mandatory disclosures for investor protection (eg that the crowdfunding services are not covered by the deposit guarantee scheme, default rates over at least 36 months, investment information sheet, and etc)

Market Growth

The crowdfunding market has grown considerably in the past decade and will continue to grow, as shown in the tables below.

Equity-based crowdfunding total value growth history

• UK (million GBP) - Source
  • 2013: 28                    
  • 2014: 84
  • 2015: 245
  • 2016: 272
  • 2017: 333
  • 2018: 353
  • 2019: 475    
  • 2020: 549
• Europe* (million USD) - Source                 
  • 2013: 63.1                 
  • 2014: 109.8 
  • 2015: 176.9
  • 2016: 242    
  • 2017: 237.9    
  • 2018: 278.1
  • 2019: 224    
  • 2020: 280

*Europe excluding the UK According to Statista Research Department (July 2021)

Equity-based crowdfunding total value growth projection

• United States - Source
  • In 2022 (million USD): 1,073.6
  • By 2025 (million USD): 1,241.4
• United Kingdom - Source
  • In 2022 (million USD): 1,074.0    
  • By 2025 (million USD): 1,328.3
• Ireland - Source
  • In 2022 (million USD): 4.9    
  • By 2025 (million USD): 6.6
• EU-27 - Source
  • In 2022 (million USD): 1,826.3    
  • By 2025 (million USD): 2,231.7

According to Statista Research Department (July 2021)

Contact

The Regulation brings welcome certainty, supervision, and investor protection to the crowdfunding industry.  Beauchamps have broad experience advising crowdfunding platforms, project owners and investors. For more information contact Edward Evans, Sam Sheridan, Jeanne-Marie Moriarty or your usual Beauchamps' contact.