An EU regulator has called for crowdfunding platforms to accelerate their transition to the new harmonised rules for the sector, after it emerged that 94 per cent have not yet applied for authorisation.
The European Crowdfunding Service Provider Regulation (ECSPR) came into force last November, but crowdfunding platforms in the bloc have benefitted from a transition period.
In a report to the European Commission, the European Securities and Markets Authority (ESMA) said many platforms are not yet ready to operate under the new rules.
The report showed that as of 22 March this year, no platforms in the transitional period have been authorised under the ECSPR, and only 15 have applied for authorisation out of an estimated 271 platforms benefitting from the transitional period, which equates to 94.5 per cent.
Citing feedback from stakeholders, the authority said it appears that the transition to the new rules represents a “significant burden” for crowdfunding platforms and would increase operating costs, hitting their margins and profitability.
Financial uncertainties due to Covid and the post-pandemic situation also played a role in the delay in applying for authorisation, ESMA added.
ESMA warned that many crowdfunding platforms may apply for authorisation under the new rules near the end of the transition period, which would create a backlog for national regulators and make it difficult for them to approve all requests.
“ESMA strongly encourages European crowdfunding service providers currently operating under national law to accelerate their transition to the regime deriving from crowdfunding regulation by filing relevant applications to their national competent authority as soon as possible,” ESMA said.
ESMA said if the transitional period is not extended, it seems likely that a potentially significant number of crowdfunding platforms will be required to stop operating after 10 November.
ESMA suggested that the European Commission explore the possibility of extending the transitional period to crowdfunding platforms currently operating only on a national basis which have applied for authorisation prior to 1 October 2022.
“While an extension of the transitional period would delay the application of harmonised investor protection rules, it appears that the risks at stake for the European crowdfunding market as a whole are significant in case no extension is implemented,” ESMA said.
“For this reason, ESMA supports granting the extension of the transitional period.”