On 30 August 2019, HM Treasury published a letter (dated 27 August 2019) from John Glen, Economic Secretary to the Treasury to Lord Boswell of Aynho, House of Lords EU Committee Chair, addressing concerns regarding uncertainty around the content of the European Commission’s (the Commission) proposed Regulation on European crowdfunding service providers for business and the related Commission proposal for a Directive making consequential amendments to the MiFID II Directive relating to crowdfunding.
In the letter, Mr Glen outlines the key differences between the European Council’s (the Council) and European Parliament’s (the Parliament) position on the proposed legislation, in particular, the disparity between the scope and application of the file. The Parliament’s position is one of an opt-in Regulation that applies to all crowdfunding business models where business finance is facilitated, the caveat is that it does not include provisions surrounding investor protection and governance unlike the Council text.
On the other hand, the Council now takes the view that this is a minimum-harmonising Regulation meaning that it would apply to all member states automatically. The Regulation does not apply to all crowdfunding service providers facilitating business finance. It will only apply to investment-based crowdfunding and simple peer-to-peer (P2P) lending platforms (i.e. pricing and conduit models). Mr Glen adds that, accordingly, ‘discretionary’ platforms, for instance, those where a platform manages a portfolio of loans on behalf of an investor in order to meet a target rate of return, are currently out of scope of the file. In the letter, Mr Glen affirms that he is content with the proposed review clause contained in the current text as it proposes to consider the inclusion of discretionary models in two years’ time providing the option for the Regulation to evolve in this diverse sector. Meanwhile, the FCA would continue to regulate the more complicated types of models under the UK’s existing national framework.
Other notable provisions included in the Council’s text that are absent from the version agreed by the Parliament include:
- a reflection period where investors are able to reconsider an opportunity within 7 days of expressing an interest allowing investors to have ample time before committing to an investment;
- an investment limit for non-sophisticated investors in line with FCA’s existing rules to ensure UK investors have the same protections as the present; and
- additional responsibilities on platforms with regards to capital buffers and governance structures to ensure the platform meets prudential requirements and builds investor and borrower trust in sector
On a final note, Mr Glen states that the UK Government’s decision to implement the legislation, even if not required to do so during a transition period after withdrawing from the EU, will depend on the final agreed text and whether implementing the legislation would enhance the competitiveness of UK crowdfunding and P2P lending sectors whilst ensuring consumer investors are equally protected.