26 February 2015
In an opinion issued today, the European Banking Authority (EBA) recommended that EU legislators clarify the applicability of existing EU law to lending-based crowdfunding, so as to ensure that all participants can have confidence in this new market segment. The EBA opinion, which is addressed to the European Commission, the European Parliament and the EU Council, looked into lending-based crowdfunding across the EU, identified a series of risks and evaluated how they can be addressed in the EU legislative framework.
According to the Authority, convergence for the supervision practices of crowdfunding across the EU is desirable not only to avoid regulatory arbitrage, but also to ensure a level-playing field for all participants across the EU Single Market. The EBA explained that in these early stages of the development of crowdfunding, regulatory convergence should be based on existing EU law, and recommended that EU legislators clarify its applicability.
The analysis of lending-based crowdfunding was carried out by the EBA in line with its mandate to monitor new and innovative forms of financial activities and with a view to determine the risks to participants in this market (i.e. lenders, borrowers and platform providers). The EBA specifically looked into the type of regulation that would be required in order to drive confidence in this new market segment. The opinion reviewed present business models in the sector and considered the extent to which the identified risks are already addressed in existing EU directives and regulations and national regulatory frameworks.
As a result, the EBA has identified the Payment Services Directive (Directive 2007/64/EC), which can cover payment-related aspects of crowdfunding activities, as the most readily applicable EU legislative text to lending-based crowdfunding. However, the Authority pointed out that since crowdfunding platforms would not typically fall within the perimeter of credit institutions, as they are defined under EU law, lending-related aspects are not covered by EU law. The EBA added that this situation leaves several lending-related risks unlikely to be addressed and gave a set of options to mitigate these.
One of the tasks of the EBA is to monitor new and existing financial activities and to adopt guidelines and recommendations with a view to promoting the safety and soundness of markets and convergence in regulatory practice. The EBA can deliver opinions in its areas of competence as prescribed in Article 8(2) and Article 34(1) of the Regulation (EU) No 1093/2010.
This opinion has been adopted in accordance with Article 14(5) of the Rules of Procedure of the EBA Board of Supervisors, and is the result of a coordinated work with the European Securities and Markets Authority (ESMA), which published its Opinion and Advice on investment-based crowdfunding in December 2014.