The Regulation creates a new single European status of “European Crowdfunding Service Providers for businesses” (ECSP), which is mandatory to carry out a crowdfunding activity within the European Union. This status will be subject to the approval of the competent national authority of the Member State in which it is established. In France, the French Financial Markets Authority (Autorité des marchés financiers, AMF) is competent. Once authorized, the provider will be able to offer crowdfunding activities in the form of securities subscription (crowdequity) and/or interest-bearing loans (crowdlending), depending on the scope of its activity program.

Compared to the local statutes established by the current French regime, this new regime is in fact based on reception and transmission of orders (RTO) status and not an advisory one.

The entry into force of this regulation is set for 10 November 2021. From this date, existing crowdfunding platforms wishing to continue their activity will have a period of one year (i.e. until 10 November 2022) to obtain the new ECSP authorization (Article 48 §1 of the Regulation). The European Commission may decide to extend this transition period once for a further twelve months, until 10 November 2023. At the end of this transition period (as extended, as the case may be), only providers authorized in accordance with the Regulation will be able to offer crowdfunding services in securities or loans in Europe.

Providers will be subject to various organizational, transparency, conflict of interest, due diligence and complaint management obligations. In France, this new regime will terminate and replace the existing regimes for CIF and IFP.

In addition, a provider of crowdfunding services authorized in accordance with the Regulation will be able to provide crowdfunding services in a Member State other than the one in which the authorization was granted (European passport), subject to compliance with a notification procedure to its competent national authority (Article 18 of the Regulation).

The European Securities and Markets Authority (ESMA) is responsible for maintaining a single register of all providers of crowdfunding services.

Under previous national regulations, the maximum loan amount could not exceed €2,000 per lender and per project, and a project owner could not borrow more than €1 million per project (Article D.548-1 of the French Monetary and Financial Code).

In the effort of a harmonized European legislation and considering the risks associated with crowdfunding, and in the interest of effective investor protection, the new European regulation have set a single fundraising threshold of €5,000,000 over a 12-month period, corresponding to a total amount for crowdfunding offers made by a given project owner throughout the European Union.

The objective of the Regulation is above all to protect and limit the risks incurred by Internet lenders. European providers of crowdfunding services will thus be subject to new obligations:

• information to clients (Article 19 of the Regulation): all information provided by ECSPs on themselves, the costs, financial risks, charges related to services or investments and crowdfunding, the criteria for selecting projects and the nature of the services provided and the risks incurred shall be fair, clear and not misleading;
• default rate disclosure (Article 20 of the Regulation): crowdlending platforms shall disclose annually the default rates of the crowdfunding projects offered on their platform over at least the last thirty-six months. They shall also publish an outcome statement within four months of the end of each financial year indicating the expected and actual default rate, a summary of the assumptions used in determining expected default rates and, in the context of a target rate, an actual return achieved.

Furthermore, inspired by the MiFID nomenclature, the Regulation distinguishes two categories of investors according to their level of knowledge and sensitivity to risks, with different levels of information and protection safeguards appropriate for each of those categories: sophisticated and non-sophisticated investors.

A “sophisticated investor” is defined as “any natural or legal person who is a professional client by virtue of point (1), (2), (3) or (4) of Section I of Annex II to Directive 2014/65/EU or any natural or legal person who has the approval of the crowdfunding service provider to be treated as a sophisticated investor in accordance with the criteria and the procedure laid down in Annex II to [the] Regulation.” (Article 2(j) of the Regulation).

Annex II of the Regulation specifies that a sophisticated investor is an investor who possesses the awareness of the risks associated with investing in capital markets and adequate resources to undertake those risks without exposing itself to excessive financial consequences and may be categorised as such if they meet the identification criteria set out in the said Annex II:

• legal persons meeting at least one of the following criteria: (a) own funds of at least EUR 100,000; (b) net turnover of at least EUR 2,000,000; (c) balance sheet total of at least EUR 1,000,000; and
• natural persons meeting at least two of the following criteria: a) personal gross income of at least EUR 60,000 per fiscal year or a financial instruments portfolio that exceeds EUR 100,000; b) work or has worked in the financial sector for at least one year in a professional position which requires knowledge of the transactions or services envisaged, or the investor has held an executive position for at least 12 months in a legal person as referred to above ; c) the investor has carried out transactions of a significant size on the capital markets at an average frequency of 10 per quarter, over the previous four quarters.

A non-sophisticated investor is a contrario any investor who is not a sophisticated investor.

The latter benefit from special protection. In particular, they are subject to a knowledge test and a simulation of their ability to bear possible losses. In addition, if they wish to invest in a project an amount that exceeds the higher of either EUR 1 000 or 5 % of that investor’s net worth, the crowdfunding service provider shall first ensure that non-sophisticated investors receive a risk warning and provide explicit consent (Article 21 of the Regulation).

They also benefit from a pre-contractual reflection period, during which they may, at any time, revoke their offer to invest or expression of interest in the crowdfunding offer without giving a reason and without incurring a penalty. Such reflection period starts at the moment of the offer to invest or the expression of interest by the prospective non-sophisticated investor and expires after four calendar days (Article 22 of the Regulation).

Finally, for these two categories of investors, crowdfunding service providers shall provide prospective investors with a key investment information sheet (KIIS)drawn up by the project owner for each crowdfunding offer, with standardized content, which is not, however, subject to any prior review by the competent authorities.