Creating the Europe-wide framework for alternative finance is the ambitious objective of the European Commission (EC) with a new legislative proposal, part of the Capital Market Union action plan approved in 2015, that is now at the assessment stage and open for comments and feedback from the interested parties, until November 27, 2017.
The EC acknowledges that despite the progress made in the past years there is still a clear problem with access to finance for European small and medium size enterprises (SMEs), especially when it comes to expanding from startup to growth stage. They recognize that in order to broaden access to capital, one key point would be to strengthen and facilitate the expansion of different sources of alternative finance across the Single Market, including P2P and equity crowdfunding.
Diving straight to the point, the main issues the initiative aims to tackle are:
– Market fragmentation and the lack of scale
Small scale of platforms usually operating inside national borders, a little percentage of foreign investors, and services offered only to residents.
– Perceived lack of reliability to crowdfunding and peer-to-peer platforms
Concerns on the reliability of the platforms is considered a key issue for the growth of the industry, while the major risks perceived are “loan defaults or business failures, fraudulent activities or the collapse of platforms due to malpractice”. Disclosure requirements for the advertised offers are still very different in the different national legislation, which complicates the comparison from country to country.
Creating the required conditions to enable platforms to expand internationally and provide the operating platforms with an effective risk management framework is instead listed as the main policy objectives.
In this light the European Commission evaluates four policy options:
Option 1: Baseline scenario – no EU framework
In this case the not much would change, with the EC maintaining regular meetings with the market players to keep the overall development under review.
Option 2: Building on reputational capital – a self-regulatory approach with minimum EU standards
The objective here would be to put in place a set of non-binding minimum standards and best practices for the operators.
Option 3: A comprehensive EU approach – treating crowdfunding platforms like regulated trading venues or payment institutions
The EC would introduce an EU framework for crowdfunding into existing financial services regulation, with the inclusion of specific provisions to regulate alternative finance platforms. In this scenario, platforms will be able to request a license under existing passporting framework, to operate across the Single Market. Requirements related to governance and transparency would be then regulated in a proportionate way to guarantee the integrity of the sector and the investor protection.
Option 4: The cross-border solution – a standalone opt-in EU framework
In this scenario would be created an EU framework where platforms willing to operate internationally with cross-border activity could opt into. Rules for platforms operating just at a national level would instead remain unchanged.
All the stakeholders and the parties with a stake in the future of the digital finance market in the EU are now welcome to submit their comments and feedback about this initiative directly from this page.
Diving straight to the point, the main issues the initiative aims to tackle are:
– Market fragmentation and the lack of scale
Small scale of platforms usually operating inside national borders, a little percentage of foreign investors, and services offered only to residents.
– Perceived lack of reliability to crowdfunding and peer-to-peer platforms
Concerns on the reliability of the platforms is considered a key issue for the growth of the industry, while the major risks perceived are “loan defaults or business failures, fraudulent activities or the collapse of platforms due to malpractice”. Disclosure requirements for the advertised offers are still very different in the different national legislation, which complicates the comparison from country to country.
Creating the required conditions to enable platforms to expand internationally and provide the operating platforms with an effective risk management framework is instead listed as the main policy objectives.
In this light the European Commission evaluates four policy options:
Option 1: Baseline scenario – no EU framework
In this case the not much would change, with the EC maintaining regular meetings with the market players to keep the overall development under review.
Option 2: Building on reputational capital – a self-regulatory approach with minimum EU standards
The objective here would be to put in place a set of non-binding minimum standards and best practices for the operators.
Option 3: A comprehensive EU approach – treating crowdfunding platforms like regulated trading venues or payment institutions
The EC would introduce an EU framework for crowdfunding into existing financial services regulation, with the inclusion of specific provisions to regulate alternative finance platforms. In this scenario, platforms will be able to request a license under existing passporting framework, to operate across the Single Market. Requirements related to governance and transparency would be then regulated in a proportionate way to guarantee the integrity of the sector and the investor protection.
Option 4: The cross-border solution – a standalone opt-in EU framework
In this scenario would be created an EU framework where platforms willing to operate internationally with cross-border activity could opt into. Rules for platforms operating just at a national level would instead remain unchanged.
All the stakeholders and the parties with a stake in the future of the digital finance market in the EU are now welcome to submit their comments and feedback about this initiative directly from this page.
About the author - Alessandro Ravanetti
Alessandro is Co-founder & CMO of Crowd Valley. He has worked in the Fintech industry, with marketplace investing and lending, since 2011. Has built and managed digital companies with distributed teams and international partners, and gained experience with both startups and large corporations, having worked with British Telecom, Bloomberg and the Grow VC Group.
Alessandro grew up in Italy, where he graduated with a B.A. in Economics at University of Parma, before to obtain a M.S. in Finance at Regent’s University London. He studied and worked in many different cities, including Munich, Geneva, London, Valencia and Barcelona, where he currently lives. Genuinely passionate about financial technology and innovation, he loves to spend his spare time traveling and discovering new cultures. You can find him on Twitter at @aleravanetti.
Alessandro is Co-founder & CMO of Crowd Valley. He has worked in the Fintech industry, with marketplace investing and lending, since 2011. Has built and managed digital companies with distributed teams and international partners, and gained experience with both startups and large corporations, having worked with British Telecom, Bloomberg and the Grow VC Group.
Alessandro grew up in Italy, where he graduated with a B.A. in Economics at University of Parma, before to obtain a M.S. in Finance at Regent’s University London. He studied and worked in many different cities, including Munich, Geneva, London, Valencia and Barcelona, where he currently lives. Genuinely passionate about financial technology and innovation, he loves to spend his spare time traveling and discovering new cultures. You can find him on Twitter at @aleravanetti.
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