A Step Forward in the Development of the Market for Crowdfunding Providers

A Step Forward in the Development of the Market for Crowdfunding Providers

Author: Lenart Kmetič

Crowdfunding for start-ups and small and medium-sized entities through online platforms (such as Kickstarter) is becoming an increasingly popular and established form of alternative financing. However, the market for crowdfunding service providers has long been subject to self‑regulation or different national regulation by individual EU Member States, which have regulated the field. This has increased the risk for investors in individual projects and created much uncertainty for the cross-border operation of crowdfunding platforms.

In order to establish a clearer legal framework for crowdfunding and to promote cross-border funding, Regulation (EU) 2020/1503 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (hereinafter: “Regulation (EU) 2020/1503”) was adopted on an EU-wide level. The latter comprehensively regulates crowdfunding services, both lending-based and investment‑based, whereby the crowdfunding offer may not exceed EUR 5 million. According to Regulation (EU) 2020/1503, crowdfunding services may only be provided by legal persons with a seat in the EU who have preliminarily received authorization to provide such services. Regulation (EU) 2020/1503 also establishes specific investor protection instruments (information and disclosure obligation, 4-day cooling-off period, etc.).

The legal framework for the implementation of the provisions of Regulation (EU) 2020/1503 was established in Slovenia by the Act on the implementation of the Regulation (EU) on European Crowdfunding Services Providers for Business (hereinafter: “ZIUPMFP”), which entered into force on 12 October 2022. Although crowdfunding service providers are already thoroughly regulated by Regulation (EU) 2020/1503, the provisions of the ZIUPMFP further regulate the liability of the owner of a project and the crowdfunding service provider.

The Slovenian legislator has designated the Securities Market Agency (ATVP) as the competent authority for the implementation of the provisions of Regulation (EU) 2020/1503. ATVP also acts as a supervisory authority and thus has the power to impose individual supervisory measures. The ZIUPMFP therefore sets fines for infringements of Regulation (EU) 2020/1503, which range from EUR 2,500 to EUR 250,000 for a legal person (from EUR 10,000 to EUR 500,000 for a medium-sized or large company) and from EUR 2,500 to EUR 150,000 for a sole proprietor. The responsible person of a legal person or a sole proprietor may also be fined between EUR 1,250 and EUR 10,000. In case of serious infringements, a legal person may be fined at least (i) EUR 500,000 or 5 % of its total annual turnover, or (ii) twice the amount of the profits derived from the infringement, or the loss prevented by the infringement if this amount exceeds the preceding amount. In accordance with the provisions of the ZIUPMFP, a fine higher than the minimum prescribed fine may also be imposed in expedited proceedings.