Since 10 November 2023, LITA.co and the other regulated crowdfunding platforms have been licensed as European crowdfunding service providers (ECSP). Why does crowdfunding need to be regulated? And what will change with this new European regulation? We explain in detail.
ECSP: a new European dynamic
Previously, each European Union member state had its own legal framework to regulate its crowdfunding activities. Accordingly, the LITA.co entities in Belgium, France and Italy each had their own licence. In Belgium, it was issued by the FSMA (Financial Services and Markets Authority), in Italy the CONSOB (Commissione Nazionale per le Societa e la Borsa) and in France by the AMF (Autorité des Marchés Financiers).
But in the meantime, the regulatory framework has evolved and the status of 'European Crowdfunding Service Provider' (ECSP) has been created at European level. The ECSP harmonises the regulatory framework for crowdequity and crowdlending platforms. Cryptos (digital assets based on cryptocurrency) and non-remunerated donations or loans are not covered by the ECSP statute.
The ECSP defines a new European passport for crowdfunding. For platforms, this means a huge simplification: they can duplicate their activity from one EU member state to another, without having to adapt to the specifics of the authorisation of the different EU member states' legislations. From now on, therefore, the entire LITA.co group operates under the same European licence, regulated by the AMF (Autorité des Marchés Financiers in France).
What will change with the ECSP?
The ECSP offers investors, especially novice investors, better protection by creating two types of profiles: "sophisticated" and "non-sophisticated" investors.
For non-sophisticated investors:
ECSP-licensed platforms must apply specific rules and procedures for non-experienced investors, who are reassessed every two years.
In practice, non-sophisticated investors have access to a special course, including a test of their financial skills and understanding of the risks involved. They also have access to a mini-audit of their assets, which simulates their capacity to bear losses, calculated at 10% of their net assets, taking into account their annual income, cash and financial liabilities. They also get a 4-day cooling-off period, during which they can withdraw their investment at no cost.
For sophisticated investors:
He or she can be classified as an experienced investor if, as a natural person, he or she meets at least two of the following criteria:
- An annual gross personal income of at least €60,000
- The investor has worked in the financial sector for 1 year or more, giving him a sound knowledge of financial transactions.
- The investor has executed an average of 10 transactions of significant size per quarter in the capital markets in the previous 4 quarters.
Or if the legal entity (company) meets the following criteria:
- Shareholders Equity of at least €100,000
- Net turnover of at least €2,000,000
- And a balance sheet total of at least €1,000,000
Platforms are professionalizing
For the first time, the licence introduces more rigorous monitoring of conflicts of interest, preventing the various players from financing their projects on their own platforms. It also provides for tighter internal controls and compliance with a solvency ratio to ensure sufficient equity to cover structural costs.
Greater transparency on investment projects
Each project will also be accompanied by a Key Investment Information Sheet (KIIS), which provides progressive access to information according to the investor's profile. Finally, the maximum amount that can be raised is €5 million per project. This represents a significant advancement for Europe as a whole. However, it's worth noting that in Belgium, the ability to raise €5 million per project was already established under the old legislation. In France and Italy, prior to this regulation, the threshold was even higher, allowing projects to raise up to €8 million.
This new European regulation is excellent news for all crowdfunding platforms, as it will allow them to become more robust and continue their mission under better conditions.