European market opens to UK’s P2P lenders under new EU regulation
The newly-harmonised European crowdfunding laws under the European Crowdfunding Service Providers Regulation (ECSPR), allow providers of online investment services to be licensed at the member state level while issuing shares, bonds and loans to investors across the European Union.
The term crowdfunding replaces here what in the UK is often termed peer-to-peer lending (for business only) and equity crowdfunding. The ECSPR provides access to opportunities across the continent without the additional paperwork that comes with launching products in multiple jurisdictions.
“This creates a great opportunity for UK financial service providers operating online equity investment and P2P platforms,” says Ivona Skultetyova of EuroCrowd.
“By expanding an existing UK business via a subsidiary in any EU member state, it will be possible to serve European investors as well as businesses issuing shares, bonds and loans.”
Because the new law is directly applicable in all EU member states, the legal hurdles to cross-border transactions have been significantly lowered. Compliance regimes are largely adapted to existing frameworks and will not come as a surprise. There remain some nuances in the national application with regard to licensing, marketing and liability, but overall these should be negligible, believes Skultetyova.
You can expect significant opportunities for market consolidation and business expansion. Indeed, we have seen the first mergers across the continent already during 2020 and 2021. In the UK, the proposed – though blocked – merger of Crowdcube and Seedrs needs to be understood in this context. The recent announcement of the proposed acquisition of Seedrs by US platform Republic is also a reaction to this new opportunity. Non-European operators are preparing for their market entry, while European platforms are adjusting their existing operations within their member states. Those which have business in several member states are scouting for the most competitive regulatory implementation.
By the way, European platforms will be able to finance British business and real estate, too, under the ECSPR license.
With the first European member state conduct authorities having already published their licensing requirements, the race is on to capture the first mover advantage. The new rules have directly been applied in all those member states that have not specifically regulated online equity or lending platforms to date, while in markets where national rules existed a grace period will end in November 2022. This means that some European operators will continue under their old regime for another year or so. But not everywhere.
In Malta the application is openly accessible online and licenses are expected to be issued by March if you apply now. But in general, there should be time until early 2022 to review all requirements without losing too much time against the competition.
“EuroCrowd members have had a look inside the development of the new rules over the past years, and today we see that many, including our UK members, have prepared themselves to take advantage of ECSPR early on,” says Oliver Gajda of EuroCrowd.
“The opportunity to operate only one office and serve more or less 27 European member states, plus businesses from other countries such as the UK, has not gone past them.
“The next two years will be crucial in building a head start before a final set of adapted rules will be applied.”
Expectations are high. Interest in the new rules is not only coming from crowdfunding and P2P lending. The rules are also an opportunity for other types of alternative lenders, for cryptoasset transactions, renewable energy and real estate finance service providers publicly offering transactions to retail and institutional investors. Even for business angel networks and venture capital firms which can open cross border transactions while at the same time providing leverage to their own funds.
The actual success of the new rules will be in the application by the market and not in the detail of the paperwork. The EU legal framework will in due course offer solutions to national anti-harmonisation efforts by some EU member states.
With UK regulation for P2P lending potentially being tightened, institutional sentiment for the market waning and market leaders resigning from the sector, there might just be an opportunity for British P2P lenders to realise that there is a growing market next door, welcoming them and providing significant opportunities for growth.