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EC supports development of crowdfunding sector

While some member states have introduced national regulations, the EC does not yet see the need to create a Europe-wide regulatory framework

The European Commission (EC) has no immediate plans to introduce a European wide regulatory framework for the crowdfunding sector, but has said it will continue to monitor the development of the alternative lending marketplace as it sees it as a crucial source of funding for small-to-medium enterprises (SMEs) in the future.

The EC conducted a review of the alternative lending space as part of its broader Capital Markets Union (CMU) Action Plan, which aims to look at ways it can diversify funding sources for SMEs across Europe. The 51-page report published yesterday (3 May) noted that while crowdfunding is still a small market, it may prove to be a crucial source of funding for SMEs in the future.

The crowdfunding sector raised around $4.2 billion in capital commitments last year, according to a report from Crowdsurfer Dashboard, a UK-based research company that tracks the development of the alternative marketplace. But the demand for crowdfunding cash may increase, as the EC’s own recent survey into the attitudes of SMEs shows that only 41 percent perceive no restrictions on accessing finance in the future.

The EC expects banks to provide the majority of funding for SMEs, but said it would like to see other forms of financing, including crowdfunding, complement traditional banks as a source of funding.
Jonathan Hill, EU commissioner for financial stability, financial services and the CMU, said: “As part of our work to improve the funding conveyor belt for businesses, we are keen to support the development of crowdfunding models as a source of financing for entrepreneurs, start-ups and other SMEs.”

While crowdfunding occurs across the EU, the activity of such marketplace lenders is nationally focused with little cross-border activity reported.

Some member states have introduced national regulations to facilitate the activity. The EC said that the regulations introduced by member states are “broadly consistent in terms of the objective and outcomes they seek to achieve”, but are specifically a response to the challenges of their own domestic marketplaces. And as the market remains small, the EC concluded that there is no case for an EU level framework “at this juncture”.

“Our focus is on promoting best practice, appropriate investor protection and consistency of national regimes. We will continue to monitor market and regulatory developments closely,” Hill said.