The European Parliament has taken the final vote on EU rules for crowdfunding,
approving a set of common rules that promise to both boost crowdfunding platforms and protect investors.
In an official procedure in Brussels on 5 October, European Parliament adopted the
latest text for the European Crowdfunding Service Provider for Business Regulation, as
well as related changes to Markets in Financial Instruments Directive (MiFid).
The new set of rules will apply to all crowdfunding services – or European
Crowdfunding Service Providers (ECSP) – across the EU. The strict regulations aim to
protect investors from financial losses through clear information and transparency,
provided by each project owner via a detailed key investment information sheet (KIIS).
“The new EU rules will allow European crowdfunding platforms like ZAAR to provide
more opportunities for start-ups and investors,” explains Matthew Caruana, manager of
Malta’s online donation-based crowdfunding platform, ZAAR. “The European
Crowdfunding Network (of which we are members) wholeheartedly welcomes the new
regulation. We believe it has the potential to make pan-European crowdfunding a
reality, unlocking further capital for European start-ups and SMEs and to European
investors.”
Since the new rules will enable crowdfunding platforms to operate more smoothly and
provide services across borders, this will widen the pool of potential investors for start-
ups and small and medium enterprises (SMEs) – while also giving investors a larger
choice of projects to support. Meanwhile, in contrast to the €1 million funding cap
previously proposed by the European Commission, under the new legislation projects
may raise up to €5 Million over a period of 12 months per project owner.
Ever-growing in popularity globally, crowdfunding is an alternative financing tool that
is ideal for start-ups and SMEs seeking early capital and who may have difficulty
accessing funds from traditional sources such as bank loans. Crowdfunding service
providers such as ZAAR connect these companies with prospective investors, usually
via online platforms.
“The crowdfunding industry continues to grow, with partnerships with institutional
investors and investment funds, but the lack of uniform crowdfunding rules across the
EU results in legal uncertainty and discourages investment in projects in a different
country,” shares Mr Caruana. “To-date, most members states had introduced their own
national regimes, such as the MiFid Directive for crowdfunding applied in Malta that
proved to be not fit for purpose. This new harmonised EU regime depends on the cooperation between the ESMA [European Security and Markets Authorities] and the
national regulators, but we hope that for Malta this framework will mean fewer barriers
for crowdfunding platforms to operate locally.”
The new rules for European crowdfunding service providers (ECSP) will apply from
October 2021. Each member state will then have responsibility for authorising and
supervising crowdfunding providers according to the new regulation.
“We also hope that this will open the door to the creation of a new financing route for
Maltese entrepreneurs, which we are certainly looking into at the moment,” Mr Caruana
adds. “There is potential for investment-based crowdfunding locally due to the high
level of liquidity, but this needs to be coupled with appropriate tax incentives such as
the Seed Investment Scheme, so that the money is used to stimulate growth and jobs
through start-ups and scale-ups.
“We are also pleased to note that the Government announced that a framework is being
drawn up that will make Malta a natural home for Start-Ups, however, the budget
speech did not give any details about this. We hope that alternative finance, including
crowdfunding, will be a strong pillar of this framework. Focusing only on trying to
attract institutional venture capital is not enough. In fact, we also aim to set up an
Investor Club to serve as an educational and awareness-raising platform for investors
and would-be investors. This has the capacity to raise awareness in Malta about early
stage investing and instilling the concept of equity finance to reduce dependency on
bank loans.
