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Crowdfunding is the raising of money from individuals, to fund a project or carry out a venture. Crowdfunding is advantageous because it has the potential to help better match investors with business projects in need of funding with crowdfunding platforms acting as an intermediary between investors and business.
As such, it is becoming increasingly important to start-up companies and early-stage companies, as a source of non-banking finance. The applicability and purpose of the new Act is to implement the provisions of the European Crowdfunding Service Provider Regulation.
The Regulation on European Crowdfunding Service Providers (ECSP) for business ((EU) 2020/1503) lays down uniform rules across the EU for the provision of investment-based and lending-based crowdfunding services related to business financing. It allows platforms to apply for an EU passport based on a single set of rules, which makes it easier for them to offer their services across the EU with a single authorisation.
What is a crowdfunding service provider?
The European Crowdfunding Service Provider Regulation defines a crowdfunding service provider as a legal person who provides the services of matching of business fund interests of investors and project owners through the use of a crowdfunding platform consisting of:
- The facilitation of granting of loans and
- The placing without a firm commitment basis of transferable securities and admitted instruments for crowdfunding purposes issued by project owners or a special purpose vehicle and the reception and transmission of client orders in relation to transferable securities and admitted instruments for crowdfunding purposes.
Authorisation as a crowdfunding service provider:
Under the new rules a crowdfunding service provider shall be obliged to apply for an authorisation from the Malta Financial Services Authority (‘MFSA’) or any other European regulatory authority.
Upon application the prospective crowdfunding service provider (“CSP”) seeking a license shall submit, amongst others, the following details to the Authority:
- The Legal Name and /or Business Name and the details of the website which will be operated by the service provider.
- The type of legal entity of the prospective CSP.
- Memorandum & Articles of association of the prospective CSP.
- Detailed programme of operations with types of crowdfunding service which the prospective CSP wishes to provide along with the crowdfunding platforms which he wishes to operate and how crowdfunding offers will be marketed.
- Information and details on governance and internal control system.
- Information and details on the resources and procedures for the control and protection measures of data processing systems with operations risks.
- Risk identification and management of day-to-day operations.
- Details on the business continuity plan explaining measures and procedures which safeguards its clients.
- Identification details of the management team of the CSP.
- Details on the competence and knowledge of the management team.
- Procedural aspects for the handling of customer complaints.
Once the application is submitted before the competent authority, within 25 working days of the receipt, the competent authority is obliged verify the application and seek further clarifications or information. The authority may also impose a deadline by which the applicant shall be required to provide the requested additional information.
Within a period of three (3) months from the date of receipt of all the requested information, the MFSA shall determine whether to grant or to refuse authorisation to the CSP. The MFSA may also grant a conditional authorisation.
The authority shall have the right to withdraw authorisation on the basis that a CSP has not commenced operations within an eighteen (18) month period from the date when the authorisation was granted.
Extension of the Authorisation
If after obtaining authorisation the CSP is willing to expand its service offering, the CSP shall submit to the authority additional information relating to these new services and request further authorisation relating to these services.
Obligations as a crowdfunding service provider:
- Changes in information: Any CSP or any person having role of daily administration and management of a CSP should provide competent authority on a continuous basis details of any changes which affect its operations.
- Maintaining Key investment Information Sheet: CSP should provide all the key investment information sheet prepared for each project owner for each crowdfunding offer. The key investment information sheet should contain a disclaimer, risk warning and should not have any misleading or incorrect information which may lead to falsification of the objective of the CSP.
Passporting
A licensed CSP is allowed to passport its crowdfunding services to any other European Member State. Where a CSP intends to passport its services to another Member State, the CSP shall inform the MFSA of its passporting intention by providing the list of Member States in which the CSP is intended to operate as well as the type of services which it intends to provide in each Member State.
Administrative Penalties:
The Authority may levy administrative penalties to a crowdfunding service provider which operates without the necessary authorisation or who does not fulfill the licensing conditions imposed by the MFSA.
Administrative penalties for non-compliance may be charged up to 500,000euro or 5% of the total annual turnover.
The MFSA shall also have the right to publish on its website the administrative penalties levied to any legal person for non-compliance.
FF International provides a vast range of advisory services including assistance to apply for licensing.
For further information, please contact:
Franco Falzon C.P.A. LL.M (Managing Director)
E: franco@ffinternational.com.mt
T: +356 2010 7771 (office)
M: +356 9989 5679 (mobile)
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