The European Banking Authority (EBA) has published an opinion on lending-based crowdfunding.
In its opinion the EBA concludes that the convergence of practices across the EU for the supervision of crowdfunding is desirable in order to avoid regulatory arbitrage, create a level-playing field, ensure that market participants can have confidence in this market innovation, and contribute to the single European market.
At this stage of market development, the EBA considers that convergence should be based on existing EU law, and recommends that EU legislators provide clarity on the applicability of the said law to lending-based crowdfunding. However, should EU legislators consider developing a possible regulatory framework, the opinion proposes several regulatory measures and also recommends that existing national regulations for crowdfunding be considered.
The EBA considers that the Payment Services Directive (PSD) is the Directive that is most feasibly applicable to lending-based crowdfunding, covering the payments-related aspects of crowdfunding activities. However, it notes that the lending aspects are not covered by EU law, leaving several risks and risk drivers. This includes a lack of or insufficient requirements on any due diligence processes and assessment of borrowers’ creditworthiness conducted by a platform, and a lack of or insufficient safeguards against platform default. For these risks and risk drivers, the EBA suggests potential ways to address them, including requirements regarding due diligence procedures on projects advertised on a crowfunding platform, and requirements regarding internal procedures and to address platform defaults.
With regard to the PSD, the EBA concludes that certain clarifications need to be made by EU legislators regarding:
- the scope of the distinction between ‘regular’ and ‘main’ activity, allowing for a common interpretation of the PSD’s application;
- the application of the exemptions listed in the PSD, in particular the use of commercial agents; and
- the definition of the payment services listed in the Annex to the PSD.
The EBA also concludes that the business models of lending-based crowdfunding platforms do not fall inside the perimeter of credit institutions and their typical business model as defined in EU legislation. The funds provided by lenders with crowdfunding platforms would therefore not qualify as deposits eligible for protection under a deposit guarantee scheme.
View EBA recommends convergence of lending-based crowdfunding regulation across the EU, 26 February 2015