On 10 November 2020, Regulation (EU) 2020/1503 on European Crowdfunding Service Providers (ECSP) entered into force. The Regulation introduces some uniform rules for the provision of investment-based and lending-based crowdfunding services related to business financing.

Generally, crowdfunding services involve three parties:

* the project owner that proposes the project to be funded

* investors who fund the proposed project

* an intermediating organization, in the form of a crowdfunding service provider that connects project owners and investors through an online platform.

The most significant provisions of the Regulation are:

– It applies to crowdfunding offers with a total value of up to 5,000,000 EUR per year.

– Any legal person who intends to provide crowdfunding services shall apply to the competent authority of the Member State where it is established for authorization as a crowdfunding service provider.

– It distinguishes between sophisticated and non-sophisticated investors with the purpose to ensure their adequate protection. An investor is considered sophisticated if he possesses the awareness of the risks associated with investing in capital markets and adequate resources to undertake those risks. It is therefore appropriate for each Member State to set the maximum threshold that non-sophisticated investors can invest in an individual project.

Crowdfunding under national Law

The Regulation will apply from 10/11/2021 whereas crowdfunding service providers can continue operating in line with their national Law until 10 November 2022.

The current crowdfunding regulatory framework in Greece is provided by Law 4706/2020, which incorporated Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The prospectus provides information about the offered securities, the guarantor, and data concerning the risks of the issuer.

In general, the publication of a prospectus is required for the public offering of securities with a total value more than 5,000,000 EUR per year. According to the Hellenic Capital Market Commission decision 1/893/16.10.2020, for the public offering of securities between 500,000 EUR and 5,000,000 EUR, the issuer is also required to publish a prospectus.

However, the Law sets an exemption from the publication of the prospectus, for the public offering of securities made exclusively through crowdfunding platforms, if two conditions are cumulatively met:

– the total value of the securities offered is less than 1,000,000 EUR per issuer per year.

– Participation of individuals does not exceed that amount of 10,000 EUR and in any case 10% of the last three years’ average of their declared income and the total annual investment per private investor in each crowdfunding platform operator does not exceed the amount of 50,000 EUR.

Before the enactment of Law 4706/2020, Law 4416/2016 had firstly introduced a regulatory framework for the public offering of securities through crowdfunding platforms, in an attempt to enable SMEs and start-ups access to alternative funding tools. For that reason, it had also set the abovementioned exemption regarding the public offering of securities through electronic platforms, but at a much lower threshold than the one introduced by Law 4706/2020.

Subsequently, the new Law further facilitated the public offering of securities through crowdfunding platforms, as it increased the threshold for the application of the relevant exemption.

Overall, the current crowdfunding condition in Greece and in most EU countries consists of certain national regimes for the operation of crowdfunding platforms. Investors are often discouraged from investing by means of crowdfunding platforms and crowdfunding service providers from offering their services elsewhere.

The Crowdfunding Regulation aims to address these obstacles by providing an enhanced investor protection framework based on clearer rules on information disclosures and risk management thus contributing to the creation of a unified crowdfunding market. Moreover, since Greece has limited alternative financial solutions for raising capital by SMEs and startups, the Regulation is expected to additionally support these companies.

The editorial team