8 Mar 2018

The European Commission is introducing important changes to its framework on crowdfunding and peer-to-peer (P2P) lending as part of the Capital Market Union action plan to increase access to finance for Europe’s SMEs.

A key issue behind these changes is the existence of different bespoke regulatory regimes across Member States. One perceived consequence is that, despite rapid growth, crowdfunding in particular has been experiencing a recent slowdown in Europe. Compliance costs are amplified when firms have several different sets of rules to circumnavigate.

The result of the Commission’s work is unsurprisingly not to sit and do nothing, nor for crowdfunding and P2P to follow a simple self-regulatory approach, but instead to create a new regime whereby firms opt into an EU framework if they wish to engage in cross-border activity across Europe (with rules for domestic focused firms left unchanged). The Commission also raised the prospect of this new framework in its ‘FinTech Action Plan’ published last month, which confirmed support for crowdfunding/peer-to-peer lending as one of the key priorities for the EU’s FinTech agenda.

Authorisation under the EU framework would allow crowdfunding and P2P platforms to passport services across all Member States. Cross-border harmonisation of rules may sound positive for market participants but the UK Crowdfunding Association seems concerned, arguing that any new legislative proposal should resemble the rules of Member States where the crowdfunding market is operating particularly well, such as the UK. Some UK firms, like Funding Circle, have suggested the UK model be applied on a pan-European basis. The UK Government, which wants to be the global leader in fintech, is similarly worried about regulatory arbitrage.

So if this new framework isn’t compatible with the high growth regulatory environment in the UK, what are ambitious firms to do when they want to expand? UK and European operators should see this package of measures as an opportunity, rather than a risk, to help create a pan-European regulatory environment that nurtures their growth. But in order to influence the new regime, early engagement with the Commission and careful lobbying of national representatives is vital.