LeX-Ray

Crowdfunding is increasingly an established form of alternative finance for start-ups and small and medium-sized enterprises (SMEs), typically relying on small investments. Crowdfunding represents an increasingly important type of intermediation where a crowdfunding service provider, without taking on own risk, operates a digital platform open to the public in order to match or facilitate the matching of prospective investors or lenders with businesses that seek funding. Such funding could take the form of loans or the acquisition of transferable securities or of other admitted instruments for crowdfunding purposes. It is therefore appropriate to include within the scope of this Regulation both lending-based crowdfunding and investment-based crowdfunding, since those types of crowdfunding can be structured as comparable funding alternatives.

The provision of crowdfunding services generally involves three types of actors: the project owner that proposes the project to be funded, investors who fund the proposed project, and an intermediating organisation in the form of a crowdfunding service provider that brings together project owners and investors through an online platform.

Crowdfunding can contribute to providing access to finance for SMEs and completing the Capital Markets Union (CMU). Lack of access to finance for SMEs constitutes a problem even in those Member States where access to bank finance has remained stable throughout the financial crisis. Crowdfunding has emerged and become an established practice of funding business activities of natural and legal persons. Such funding takes place through online platforms; the business activities are typically funded by a large number of people or organisations; and the businesses, including business start-ups, raise relatively small amounts of money.

In addition to providing an alternative source of financing, including venture capital, crowdfunding can offer other benefits to businesses. It can validate a business idea, give entrepreneurs access to a large number of people providing insights and information, and be a marketing tool.

Several Member States have already introduced domestic bespoke regimes on crowdfunding. Those regimes are tailored to the characteristics and needs of local markets and investors. As a result, the existing national rules diverge across the Union as regards the conditions of operation of crowdfunding platforms, the scope of permitted activities and the authorisation requirements.

The differences between the existing national rules are such that they obstruct the cross-border provision of crowdfunding services and thus have a direct effect on the functioning of the internal market in such services. In particular, the fact that the legal framework is fragmented along national borders creates substantial legal costs for retail investors who often face difficulties in determining the rules applicable to cross-border crowdfunding services. Therefore, such investors are often discouraged from investing cross-border by means of crowdfunding platforms. For the same reasons, crowdfunding service providers operating such platforms are discouraged from offering their services in Member States other than the one in which they are established. As a result, crowdfunding services have remained hitherto largely national, to the detriment of a Union-wide crowdfunding market, thus depriving businesses of access to crowdfunding services, especially in cases where those businesses operate in smaller national markets.

In order to foster cross-border crowdfunding services and to facilitate the exercise of the freedom to provide and receive such services in the internal market, it is necessary to address the existing obstacles to the proper functioning of the internal market in crowdfunding services, and to ensure a high level of investor protection by laying down a regulatory framework at Union level.

By addressing the obstacles to the functioning of the internal market in crowdfunding services, this Regulation aims to foster cross-border funding of businesses. Crowdfunding services in relation to lending to consumers, as defined in point (a) of Article 3 of CACD ( 3 ) , should therefore not fall within the scope of this Regulation.

To avoid regulatory arbitrage and to ensure their effective supervision, crowdfunding service providers should be prohibited from taking deposits or other repayable funds from the public, unless they are also authorised as a credit institution in accordance with Article 8 of Directive 2013/36 ( 4 ) . However, Member States should ensure that national law does not require an authorisation as a credit institution or any other individual authorisation, exemption or dispensation for project owners or investors where they accept funds or grant loans for the purposes of offering or investing in crowdfunding projects.

The provision of crowdfunding services aims to facilitate the funding of a project by raising capital from a large number of people who each contribute relatively small investment amounts through a publicly accessible internet-based information system. Crowdfunding services are thus open to an unrestricted pool of investors who receive investment propositions at the same time and involve the raising of funds predominantly from natural persons, including those that are not high-net worth individuals. This Regulation should apply to crowdfunding services that consist of the joint provision of reception and transmission of client orders and the placement of transferable securities or admitted instruments for crowdfunding purposes without a firm commitment basis on a public platform that provides unrestricted access to investors. The joint provision of those services is the key feature of crowdfunding services compared to certain investment services provided under MIFID2 ( 5 ) , even though individually those services match those covered by that Directive.

In relation to lending-based crowdfunding, this Regulation should apply to crowdfunding services that consist of the facilitation of granting of loans, including services such as presenting crowdfunding offers to clients and pricing or assessing the credit risk of crowdfunding projects or project owners. The definition of crowdfunding services should accommodate different business models enabling a loan agreement between one or more investors and one or more project owners to be concluded through a crowdfunding platform. Loans included within the scope of this Regulation should be loans with unconditional obligations to repay an agreed amount of money to the investor, whereby lending-based crowdfunding platforms merely facilitate the conclusion by investors and project owner of loan agreements without the crowdfunding service provider at any moment acting as a creditor of the project owner. The facilitation of granting of loans that falls within the scope of this Regulation is to be distinguished from the activity of a credit institution, which grants credits for its own account and takes deposits or other repayable funds from the public.

In order to deliver their services, crowdfunding service providers operate publicly accessible internet-based information systems, including those systems that require user registration.

For investment-based crowdfunding, transferability is an important safeguard in order for investors to be able to exit their investment since it provides the possibility for them to dispose of their interest on the capital markets. This Regulation therefore covers and permits crowdfunding services related to transferable securities. Shares of certain private limited liability companies incorporated under the national law of Member States are also freely transferable on the capital markets and should therefore not be prevented from being included within the scope of this Regulation.

Certain admitted instruments for crowdfunding purposes are in some Member States subject to national law governing their transferability, such as the requirement for the transfer to be authenticated by a notary. This Regulation should apply without prejudice to national law governing the transfer of such instruments.

Whilst initial coin offerings have the potential to fund SMEs, innovative start-ups and scale-ups, and can accelerate technology transfer, their characteristics differ considerably from crowdfunding services regulated under this Regulation.

Given the risks associated with crowdfunding investments, it is appropriate, in the interest of the effective protection of investors and of the provision of a mechanism of market discipline, to impose a threshold for a total consideration for crowdfunding offers made by a particular project owner. Accordingly, that threshold should be set at EUR 5 000 000, which is the threshold used by most Member States to exempt offers of securities to the public from the obligation to publish a prospectus in accordance with Regulation 2017/1129 ( 6 ) .

The overlapping regulatory frameworks established under this Regulation and Regulation 2017/1129, because of a threshold of EUR 5 000 000, might increase the risk of regulatory arbitrage and have a disruptive effect on access to finance and the development of capital markets in certain Member States. Moreover, to date, only a limited number of Member States have put in place a specific legal framework regulating crowdfunding platforms and services. Taking into account the fact that, in implementing Regulation 2017/1129, some Member States have set the threshold to exempt offers of securities to the public from the obligation to publish a prospectus at below EUR 5 000 000 and taking into account the special effort that might be sustained by those Member States in terms of adjusting their national law and ensuring the application of the single threshold under this Regulation, this Regulation should provide for a non-renewable temporary derogation in order to enable those Member States to make that significant effort. That temporary derogation should apply for the shortest possible period of time, in order to cause the least possible disturbance to the functioning of the internal market.

In order to maintain a high standard of investor protection, to reduce the risks associated with crowdfunding and to ensure fair treatment of all clients, crowdfunding service providers should have in place a policy designed to ensure that projects on their platforms are selected in a professional, fair and transparent way, and that crowdfunding services are provided in the same manner.

In order to improve the service to their clients, crowdfunding service providers should be able to propose crowdfunding projects to individual investors based on one or more specific parameters or risk indicators, such as the type or sector of business activity or a credit rating, which have been communicated in advance to the crowdfunding service provider by the investor. However, the authorisation obtained under this Regulation should not grant crowdfunding service providers the right to provide individual or collective asset management services. In order to ensure that prospective investors are offered investment opportunities on a neutral basis, crowdfunding service providers should not pay or accept any remuneration, discount or non-monetary benefit for routing investors’ orders to a particular offer provided on their platform or on a third-party platform.

Business models using automated processes whereby funds are automatically allocated by the crowdfunding service provider to crowdfunding projects in accordance with parameters and risk indicators predetermined by the investor, so called auto-investing, should be considered individual portfolio management of loans.

The existence of filtering tools on a crowdfunding platform under this Regulation should not be regarded as investment advice under MIFID2 as long as those tools provide information to clients in a neutral manner that does not constitute a recommendation. Such tools should include those that display results based on criteria relating to purely objective product features. Objective product features in the context of a crowdfunding platform could be pre-defined project criteria such as the economic sector, the instrument used and the interest rate, or the risk category where sufficient information regarding the calculation method is disclosed. Similarly, key financial figures calculated without any scope for discretion should also be considered to be objective criteria.

This Regulation aims to facilitate direct investment and to avoid creating regulatory arbitrage opportunities for financial intermediaries regulated under other legal acts of the Union, in particular Union legal acts governing asset managers. The use of legal structures, including special purpose vehicles, that interpose between the crowdfunding project and investors should therefore be strictly regulated and permitted only where it is justified by enabling an investor to acquire an interest in, for example, an illiquid or indivisible asset through issuance of transferable securities by a special purpose vehicle.

Ensuring an effective system of governance is essential for the proper management of risk and for preventing any conflict of interest. Crowdfunding service providers should therefore have in place governance arrangements that ensure their effective and prudent management. The natural persons responsible for their management should be of good repute and have sufficient knowledge, skills and experience. Crowdfunding service providers should also establish procedures to receive and handle complaints from clients.

Clients are exposed to potential risks related to the crowdfunding service providers, in particular operational risks. In order to protect clients against such risks, crowdfunding service providers should be subject to prudential requirements.

Crowdfunding service providers should be required to develop business continuity plans addressing the risks associated with failure of a crowdfunding service provider. Such business continuity plans should include provisions for the handling of critical functions, which, depending on the business model of the crowdfunding service provider, could include provisions for the continued servicing of outstanding loans, client notification and handover of asset safekeeping arrangements.

Crowdfunding service providers should operate as neutral intermediaries between clients on their crowdfunding platform. In order to prevent conflicts of interest, certain requirements should be laid down with respect to crowdfunding service providers, their shareholders, managers and employees, and any natural or legal person closely linked to them by way of control. In particular, crowdfunding service providers should be prevented from having any participation in the crowdfunding offers on their crowdfunding platforms. Major shareholders, managers and employees, and any natural or legal person closely linked to them by way of control, should not act as project owners in relation to the crowdfunding services offered on their crowdfunding platform. However, those major shareholders, managers, employees, and natural or legal persons should not be prohibited from acting as investors in the projects offered on their crowdfunding platform, provided that appropriate safeguards against conflicts of interest are in place.

In the interest of the efficient and smooth provision of crowdfunding services, crowdfunding service providers should be allowed to entrust any operational function, in whole or in part, to a third party provided that such outsourcing does not impair the quality of crowdfunding service providers’ internal controls or the effective supervision of the crowdfunding service providers. Crowdfunding service providers should however remain fully responsible for compliance with this Regulation with respect to the outsourced activities.

The requirements concerning safekeeping of assets are crucial for the protection of investors receiving crowdfunding services. Transferable securities or admitted instruments for crowdfunding purposes which can be registered in a financial instruments account or which can be physically delivered to the custodian should be safe-kept by a qualified custodian, which is authorised in accordance with Directive 2013/36 or 2014/65/EU. Depending on the type of assets to be safe-kept, assets are either to be held in custody, as with transferable securities which can be registered in a financial instruments account or which can be physically delivered, or to be subject to ownership verification and record-keeping. Safekeeping of transferable securities or admitted instruments for crowdfunding purposes that in accordance with national law are only registered with the project owner or its agent, such as investments in non-listed companies, or are held on an individually segregated account that a client could open directly with a central securities depository, is considered equivalent to asset safekeeping by qualified custodians.

Since only payment service providers are permitted to provide payment services as defined in PSD2 ( 7 ) , an authorisation to provide crowdfunding services does not equate to an authorisation also to provide payment services. It is therefore appropriate to clarify that, where a crowdfunding service provider provides such payment services in connection with its crowdfunding services, it also needs to be a payment service provider as defined in PSD2. That requirement is without prejudice to entities authorised under MIFID2 that carry out an activity referred to in Article 3 of PSD2 and that are also subject to the notification requirement set out in Article 37 of PSD2. In order to enable proper supervision of such activities, the crowdfunding service provider should inform the competent authorities whether it intends to provide payment services itself with the appropriate authorisation or whether such services will be outsourced to an authorised third party.

The growth and smooth functioning of cross-border crowdfunding services require a sufficient scale and public confidence in those services. It is therefore necessary to lay down uniform, proportionate and directly applicable requirements for the authorisation of crowdfunding service providers. Requirements for crowdfunding services should therefore facilitate cross-border provision of those services, reduce operational risks, and ensure a high degree of transparency and investor protection.

In order to ensure effective supervision of the crowdfunding service providers, only legal persons that have an effective and stable establishment in the Union, including the necessary resources, should be able to apply for authorisation as crowdfunding service providers under this Regulation.

Crowdfunding services can be exposed to money laundering and terrorist financing risks, as underlined in the Report from the Commission to the European Parliament and the Council of 26 June 2017 on the assessment of the risks of money laundering and terrorist financing affecting the internal market and relating to cross-border activities. Safeguards should therefore be provided when setting out the conditions for authorisation of crowdfunding service providers and for assessing the good repute of the natural persons responsible for their management as well as by restricting the provision of payment services to licensed entities subject to anti-money laundering and terrorist financing requirements. With a view to further ensuring market integrity by preventing risks of money laundering and terrorist financing, and taking into account the amount of funds that can be raised by a crowdfunding offer in accordance with this Regulation, the Commission should assess the necessity and proportionality of subjecting crowdfunding service providers to obligations to comply with national law implementing Directive 2015/849 ( 8 ) in respect of money laundering or terrorist financing and of adding such crowdfunding service providers to the list of obliged entities for the purposes of that Directive.

To enable crowdfunding service providers to operate cross-border without facing divergent rules and to thereby facilitate the funding of projects across the Union by investors from different Member States, Member States should not be allowed to impose additional requirements on those crowdfunding service providers that are authorised under this Regulation.

The authorisation process should enable competent authorities to be informed of the services that the prospective crowdfunding service providers intend to provide including the crowdfunding platforms that they intend to operate, to assess the quality of their management, and to assess their internal organisation and procedures set up to ensure compliance with this Regulation.

In order to ensure proper supervision and to avoid disproportionate administrative burdens, it should be possible for entities that have been authorised under Directive 2009/110 ( 9 ) , or Directive 2013/36, 2014/65/EU or (EU) 2015/2366, and that intend to provide crowdfunding services, to hold an authorisation both under one of those Directives and under this Regulation. In such cases, a simplified authorisation procedure should apply and the competent authorities should not require submission of documents or proof that are already at their disposal.

To facilitate transparency for investors as regards the provision of crowdfunding services, the European Supervisory Authority (European Securities and Markets Authority) established by ESAESMAR ( 10 ) (ESMA) should establish a public and up-to-date register of all crowdfunding service providers authorised in accordance with this Regulation. That register should include information on all operating crowdfunding platforms in the Union.

An authorisation under this Regulation should be withdrawn where the crowdfunding service provider no longer meets the conditions under which the authorisation was granted. Competent authorities should also have the power to withdraw an authorisation under this Regulation whenever a crowdfunding service provider, or a third party acting on its behalf, has lost its authorisation allowing for the provision of payment services under PSD2 or investment services under MIFID2, or whenever a crowdfunding service provider that is also a payment service provider, or its managers, employees or a third party acting on its behalf, has infringed national law implementing Directive 2015/849.

In order to provide a broad range of services to their clients, a crowdfunding service provider authorised under this Regulation should be allowed to engage in activities other than the provision of crowdfunding services covered by an authorisation under this Regulation.

In order to ensure a clear understanding of the nature of crowdfunding services and the risks, costs and charges related to such services, crowdfunding service providers should provide their clients with information that is fair, clear and not misleading.

Crowdfunding service providers who provide crowdfunding services consisting of the facilitation of granting of loans should make available to all clients certain relevant information, such as default rates of loans.

Crowdfunding service providers that apply credit scores to crowdfunding projects or suggest the pricing of crowdfunding offers should disclose key elements of their methodology. The requirement concerning disclosure of methods to calculate credit scores, or to determine the price or the interest rate, should not be construed as requiring the disclosure of sensitive business information or in a manner that impedes innovation.

To ensure adequate investor protection of different categories of investors participating in crowdfunding projects while facilitating investment flows, this Regulation distinguishes between sophisticated and non-sophisticated investors, and introduces different levels of investor protection safeguards appropriate for each of those categories. The distinction between sophisticated and non-sophisticated investors should build on the distinction between professional clients and retail clients established in MIFID2. However, that distinction should also take into account the characteristics of the crowdfunding market. In particular, the distinction between sophisticated and non-sophisticated investors in this Regulation should also consider the prospective investors’ experience in and knowledge of crowdfunding, which should be re-assessed every two years.

Financial products marketed on crowdfunding platforms are not the same as traditional investment products or savings products, and should not be marketed as such. However, to ensure that prospective non-sophisticated investors understand the level of risk associated with crowdfunding investments, crowdfunding service providers should be required to run an entry knowledge test of prospective non-sophisticated investors in order to ascertain their understanding of such investments. Crowdfunding service providers should explicitly warn prospective non-sophisticated investors that have insufficient knowledge, skills and experience that the crowdfunding services provided might be inappropriate for them.

Given that sophisticated investors are, by definition, aware of the risks associated with investments in crowdfunding projects, there is no merit in applying an entry knowledge test to them. Similarly, crowdfunding service providers should not be required to issue risk warnings to sophisticated investors.

In order to ensure that non-sophisticated investors have read and understood the explicit risk warnings issued to them by the crowdfunding service provider, they should expressly acknowledge the risks that they are taking when they invest in a crowdfunding project. In order to maintain a high level of investor protection and given that an absence of such acknowledgement indicates a potential lack of understanding of the risks involved, crowdfunding service providers should only accept investments from non-sophisticated investors that have expressly acknowledged that they have received and understood those warnings.

Given the risk associated with crowdfunding projects, non-sophisticated investors should avoid overexposure to them. There is a significant risk of losing large amounts of the initially invested sums or even of experiencing total loss. It is therefore appropriate to set out a maximum amount that non-sophisticated investors can, without further safeguards, invest in an individual project. By way of contrast, sophisticated investors who have the necessary experience, knowledge or financial capacity, or a combination thereof, should not be limited by such a maximum amount.

In order to strengthen the protection for non-sophisticated investors, it is necessary to make provisions for a reflection period during which a prospective non-sophisticated investor can revoke an offer to invest or an expression of interest in a particular crowdfunding offer without giving a reason and without incurring a penalty. That is necessary to avoid a situation where a prospective non-sophisticated investor, by accepting a crowdfunding offer, thereby also accepts an offer to enter into a legally binding contract without any possibility of retraction within an adequate period of time. The period of reflection is not necessary when a prospective non-sophisticated investor can express an interest in a particular crowdfunding offer without also thereby binding him or herself to a contract, except in the situation when such an offer to invest is made or such an expression of interest is expressed at a moment close to the scheduled expiry date of the offer or to the date of reaching the target funding goal. Crowdfunding service providers should ensure that no money is collected from the investor or transferred to the project owner before the reflection period has expired.

Considering the potential effects of the right to revoke an offer to invest or an expression of interest during a reflection period on the costs of raising capital through crowdfunding platforms, the Commission should assess, as a part of its report under this Regulation, whether the reflection period should be shortened to allow for a more efficient capital raising process without harming investor protection.

ICSD ( 11 ) covers claims arising out of an investment firm’s inability to repay money owed to or belonging to investors and held on their behalf in connection with investment business, or its inability to return to investors any instruments belonging to them and held, administered or managed on their behalf in connection with investment business. Considering that the safekeeping of assets connected with crowdfunding services provided by an investment firm that is also authorised pursuant to MIFID2 does not involve the provision of investment services within the meaning of point (2) of Article 4(1) of that Directive, non-sophisticated investors should be informed in the key investment information sheet that the investor compensation scheme protection does not apply to transferable securities or admitted instruments for crowdfunding purposes acquired through the crowdfunding platform. Moreover, the provision of crowdfunding services by such crowdfunding service provider should not be considered to be the taking of deposits within the meaning of point (3) of Article 2(1) of DGSTERD ( 12 ) .

This Regulation lays down the content of a key investment information sheet to be provided by crowdfunding service providers to prospective investors for every crowdfunding offer in order to enable them to make an informed investment decision. The key investment information sheet should warn prospective investors that the investing environment they have entered into entails risks that are covered neither by deposit guarantee schemes established in accordance with DGSTERD nor by investor compensation schemes established in accordance with ICSD.

The key investment information sheet should reflect the specific features of lending-based and investment-based crowdfunding. To that end, specific and relevant indicators should be required. The key investment information sheet should also take into account, where available, the specific features and risks associated with project owners, and should focus on material information about the project owners, the investors' rights and fees, and the type of transferable securities, admitted instruments for crowdfunding purposes and loans offered. The key investment information sheet should be drawn up by the project owners, because the project owners are in the best position to provide the information required to be included therein. However, since it is the crowdfunding service providers that are responsible for providing the key investment information sheet to prospective investors, it is the crowdfunding service providers that should ensure that the key investment information sheet is clear, correct and complete.

Crowdfunding service providers should be allowed to present more information than required in the key investment information sheet drawn up by the project owner. Such information should, however, be complementary and consistent with the other information provided in the key investment information sheet.

If a crowdfunding service provider identifies an omission, mistake or inaccuracy in the key investment information sheet which could have a material impact on the expected return of the investment, that crowdfunding service provider should signal such an omission, mistake or inaccuracy promptly to the project owner, who should complete or correct that information. Where such completion or correction is not made, the crowdfunding service provider should, under certain conditions, suspend or even cancel the crowdfunding offer.

To ensure seamless and expedient access to capital markets for start-ups and SMEs, to reduce their costs of financing and to avoid delays and costs for crowdfunding service providers, there should be no requirement for the key investment information sheet to be approved by a competent authority.

Where so permitted by national law, a crowdfunding service provider should be able to transfer the ownership of shares in an investment-based crowdfunding project by updating its information system. A crowdfunding service provider should also, in the interests of transparency and flow of information, be able to allow clients who have made investments through its crowdfunding platform to advertise on a bulletin board on its crowdfunding platform their interest in buying or selling loans, transferable securities or admitted instruments for crowdfunding purposes which were originally offered on that crowdfunding platform, provided that the bulletin board does not bring together multiple third-party buying and selling interests in a way that results in a contract in relation to such advertisements. The bulletin board provided by a crowdfunding service provider should therefore not consist of an internal matching system which executes client orders on a multilateral basis unless, in relation to transferable securities, the crowdfunding service provider also has a separate authorisation as an investment firm in accordance with Article 5 of MIFID2, or as a regulated market in accordance with Article 44 of that Directive. Crowdfunding service providers that do not hold such an authorisation in relation to transferable securities should clearly inform investors that they do not accept the reception of orders for the purposes of buying or selling contracts in relation to investments originally made on the crowdfunding platform, that any buying and selling activity on their crowdfunding platform is at the investor's discretion and responsibility, and that they do not operate a trading venue in accordance with MIFID2.

To facilitate transparency and to ensure proper documentation of communications with clients, crowdfunding service providers should keep all appropriate records related to their services and transactions.

To ensure fair and non-discriminatory treatment of clients, crowdfunding service providers that are promoting their services through marketing communications should provide information that is fair, clear and not misleading.

To provide more legal certainty to crowdfunding service providers operating across the Union and to ensure easier market access, national laws, regulations and administrative provisions which specifically govern marketing communications of crowdfunding service providers and which are applicable in Member States should be published electronically, as well as summaries thereof in a language customary in the sphere of international finance. For that purpose, ESMA and the competent authorities should keep their websites up-to-date.

To allow for a better understanding of the extent of regulatory divergences between Member States regarding the requirements applicable to marketing communications, competent authorities should provide ESMA annually with a detailed report on their enforcement actions in that area.

To avoid unnecessary costs and administrative burden on the cross-border provision of crowdfunding services, marketing communications should not be subject to translation requirements where they are provided in at least one of the official languages of the Member State in which the marketing communications are disseminated or in a language accepted by the competent authorities of that Member State.

To ensure an efficient supervision and authorisation procedure, Member States should delineate the duties and functions to be carried out by the competent authorities pursuant to this Regulation. In order to facilitate effective cross-border administrative cooperation, each Member State should designate a single point of contact to manage communication with ESMA and competent authorities across the Union.

Since effective tools, powers and resources of the competent authorities guarantee supervisory effectiveness, this Regulation should provide for a minimum set of supervisory and investigative powers to be entrusted to competent authorities in accordance with national law. Those powers should be exercised, where national law so requires, by application to the competent judicial authorities. When exercising their powers under this Regulation, ESMA and the competent authorities should act objectively and impartially and remain autonomous in their decision-making.

For the purpose of detecting infringements of this Regulation, it is necessary for competent authorities to be able to access premises other than the private residences of natural persons in order to seize documents. Access to such premises is necessary when there is reasonable suspicion that documents and other data related to the subject matter of an inspection or investigation exist and might be relevant to prove an infringement of this Regulation. Additionally, access to such premises is necessary where the natural or legal person to whom a demand for information has already been made fails to comply with it, or where there are reasonable grounds for believing that, if a demand were to be made, it would not be complied with or that the documents or information to which the information requirement relates would be removed, tampered with or destroyed.

In order to ensure that the requirements set out in this Regulation are fulfilled, it is important that Member States take the necessary steps to ensure that infringements of this Regulation are subject to appropriate administrative penalties and other administrative measures. Those penalties and measures should be effective, proportionate and dissuasive and ensure a common approach in Member States and a deterrent effect. This Regulation should not limit Member States’ ability to provide for higher levels of administrative penalties.

In order to ensure that decisions imposing administrative penalties or other administrative measures taken by competent authorities have a deterrent effect on the public at large, they should be published unless the competent authority deems it necessary to opt for a publication on an anonymous basis, to delay the publication, or not to publish at all.

Although Member States can lay down rules for administrative and criminal penalties for the same infringements, Member States should not be required to lay down rules for administrative penalties for infringements of this Regulation which are subject to national criminal law. However, the maintenance of criminal penalties instead of administrative penalties for infringements of this Regulation should not reduce or otherwise affect the ability of competent authorities to cooperate, access and exchange information in a timely way with competent authorities in other Member States for the purposes of this Regulation, including after any referral of the relevant infringements to the competent judicial authorities for criminal prosecution.

As the key investment information sheet is designed to be tailored to the specific features of a crowdfunding offer and the information needs of investors, crowdfunding offers under this Regulation should be exempted from the obligation to publish a prospectus under Regulation 2017/1129 and that Regulation should be amended accordingly.

Whistleblowers can bring new information to the attention of competent authorities which helps them in detecting infringements of this Regulation and imposing penalties. This Regulation should therefore ensure that adequate arrangements are in place to enable whistleblowers to alert competent authorities to actual or potential infringements of this Regulation and to protect them from retaliation. That should be done by amending PPWRBULD ( 13 ) in order to make it applicable to breaches of this Regulation.

In order to specify the requirements set out in this Regulation, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission in respect of extending the transitional period with respect to crowdfunding services provided in accordance with national law. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making ( 14 ) . In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

In order to promote the consistent application of this Regulation, including adequate protection of investors and consumers across the Union, technical standards should be developed. As bodies with highly specialised expertise, it would be efficient and appropriate to entrust ESMA and the European Supervisory Authority (European Banking Authority) established by ESAEBAR ( 15 ) (EBA) with the development of draft regulatory technical standards which do not involve policy choices, for submission to the Commission.

The Commission should be empowered to adopt regulatory technical standards developed by ESMA and EBA with regard to individual portfolio management of loans, complaints handling, conflicts of interest, authorisation as crowdfunding service provider, information to clients, default rate disclosure, the entry knowledge test and simulation of the ability to bear loss, the key investment information sheet and cooperation between competent authorities. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulations ESAEBAR and ESAESMAR.

The Commission should also be empowered to adopt implementing technical standards developed by ESMA with regard to reporting by crowdfunding service providers, the publication of national provisions concerning marketing requirements and cooperation between competent authorities and with ESMA. The Commission should adopt those implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of ESAESMAR.

Any processing of personal data carried out within the framework of this Regulation, such as the exchange or transmission of personal data by the competent authorities, should be undertaken in accordance with GDPR ( 16 ) and any exchange or transmission of information by ESMA should be undertaken in accordance with Regulation 2018/1725 ( 17 ) .

Since the objectives of this Regulation, namely to address the fragmentation of the legal framework applicable to crowdfunding services in order to ensure the proper functioning of the internal market in such services while enhancing investor protection as well as market efficiency and contributing to establishing the CMU, cannot be sufficiently achieved by the Member States but can rather be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

The date of application of this Regulation should be deferred to align it with the date of application of the national rules transposing Directive 2020/1504 ( 18 ) , which exempts crowdfunding service providers falling under the scope of this Regulation from the application of MIFID2.

In the interest of legal certainty and in view of the replacement of national rules by the rules set out in this Regulation insofar as types of crowdfunding services are concerned which are now included within the scope of this Regulation, it is appropriate to make transitional arrangements allowing persons providing such crowdfunding services in accordance with national law preceding this Regulation to adapt their business activities to this Regulation and to have sufficient time to apply for an authorisation thereunder. Such persons should therefore be able to continue to provide crowdfunding services that are included within the scope of this Regulation in accordance with the applicable national law until 10 November 2022. During that transitional period, Member States can put in place special procedures to enable legal persons, which have been authorised under national law to provide crowdfunding services included within the scope of this Regulation, to convert their national authorisations into authorisations under this Regulation, provided that the crowdfunding service providers meet the requirements set out in this Regulation.

Crowdfunding service providers who have failed to obtain authorisation in accordance with this Regulation by 10 November 2022 should not issue any new crowdfunding offers after that date. To avoid a situation whereby the raising of target capital in relation to a particular crowdfunding project is not completed by 10 November 2022, the calls for funding should be closed by that date. However, after 10 November 2022 servicing of the existing contracts, including collecting and transferring receivables, providing asset safekeeping services or processing corporate actions, can continue in accordance with the applicable national law.

This Regulation respects the fundamental rights and observes the principles recognised by the Charter of Fundamental Rights of the European Union. Therefore, this Regulation should be interpreted and applied in accordance with those rights and principles.

The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation 2018/1725,