Introduction
In recent developments, the Cyprus Securities and Exchange Commission (CySEC) has introduced a significant policy statement, PS-01-2023, which outlines the implementation of Regulation (EU) 2020/1503 governing European Crowdfunding Service Providers for businesses. Additionally, it includes Directive DI73-2009-02 addressing Crowdfunding Service Providers.
Regulatory Framework
The new regulatory framework’s primary objectives are to establish uniform rules, enhance market accessibility, strengthen investor protection, and grant European Crowdfunding Service Providers an EU passport. This passport enables them to offer services across the European Union with a single authorization. The framework encompasses various aspects, including information disclosures, transparency, marketing communications, governance, risk management, and supervisory powers for national authorities overseeing crowdfunding platforms.
Applicability
The Policy Statement applies to legal entities intending to offer crowdfunding services from Cyprus and those already authorized to do so under national law. This includes Cyprus Investment Firms (CIFs).
Key European Regulations
Regulation (EU) 2020/1503 on European Crowdfunding Service Providers for Business (ECSP Regulation)
Regulation (EU) 2020/1503 marks a significant step toward harmonizing the regulatory environment for crowdfunding services within the European Union. Introduced in October 2020, this regulation aims to create a single market for crowdfunding services, establish a clear legal framework for service providers, enhance investor protection, and improve market accessibility.
Key aspects of this regulation include:
Uniform Rules
The ECSP Regulation introduces a set of uniform rules for crowdfunding platforms operating within the EU. This consistency minimizes regulatory arbitrage and ensures a level playing field for all market participants.
EU Passport
A primary objective of this regulation is to create an EU passport for crowdfunding service providers (CSPs). This passport allows CSPs to provide their services throughout the EU with a single authorization, streamlining expansion into multiple member states.
Investor Protection
The regulation strengthens the investor protection framework by setting clear rules on information disclosures for project owners and crowdfunding platforms. It also mandates rules on transparency and marketing communications concerning the provision of crowdfunding services within the EU.
Governance and Risk Management
The ECSP Regulation emphasizes robust governance and risk management practices for crowdfunding platforms. It requires CSPs to establish procedures for identifying, managing, and mitigating potential risks to their operations and clients.
Supervisory Powers
The regulation grants national competent authorities, such as the Cyprus Securities and Exchange Commission (CySEC), strong and harmonized supervisory powers to oversee crowdfunding platforms. This ensures that platforms operate in compliance with the regulation, ultimately protecting investors and maintaining market integrity.
Scope
The ECSP Regulation applies to crowdfunding service providers offering services within the EU, encompassing lending-based crowdfunding and investment-based crowdfunding services. However, it does not apply to reward-based or donation-based crowdfunding platforms.
Cyprus Crowdfunding Service Provider Framework
Directive DI73-2009-02
Directive DI73-2009-02 for Crowdfunding Service Providers is a national directive issued by the Cyprus Securities and Exchange Commission (CySEC). This directive offers guidance on implementing Regulation (EU) 2020/1503 on European Crowdfunding Service Providers for Business in Cyprus. Its purpose is to facilitate the authorization process for crowdfunding service providers (CSPs) and provide clarity on regulatory requirements and compliance obligations for CSPs operating in Cyprus.
Key aspects of Directive DI73-2009-02 include:
Authorization Application
CSPs intending to offer crowdfunding services in Cyprus must submit an authorization application to CySEC. The directive outlines the application process, including required documentation and questionnaires. Entities authorized under national law can continue offering crowdfunding services until November 10, 2023, or until they receive authorization under the ECSP Regulation, whichever comes first.
Compliance Obligations
The directive establishes compliance obligations for CSPs operating in Cyprus, including the submission of annual confidential reports, disclosure of crowdfunding project default rates, and public outcome statements. CSPs must also provide prospective investors with comprehensive key investment information sheets (KIIS) and adhere to robust governance and risk management practices.
Language Requirements
Directive DI73-2009-02 specifies language requirements for documentation, mandating that documents such as KIIS must be drafted in Greek or English, with a Greek version available if the original is in English.
Ex-ante Notification
Regarding the ex-ante notification of the KIIS, CySEC requires a notification period of at least seven working days before making it available to prospective investors.
Fees
The directive outlines fees payable to CySEC for the examination of authorization applications, notifications of changes, or intentions to provide or terminate services or activities. Annual fees, consisting of a fixed fee and a cumulative increment based on turnover, are applicable to CSPs operating in Cyprus.
Crowdfunding Service Provider Fees
Fees payable to CySEC include a €2,000 fee for the examination of authorization applications, as well as fees for notifying changes or intentions related to services or activities, as detailed in Article 7 of Directive DI73-2009-02. Annual fees include a fixed fee of €5,000 and an increment based on turnover, subject to specific scales based on turnover brackets.
How Michael Chambers & Co LLC Can Assist
Michael Chambers & Co LLC is a prominent law firm in Cyprus, offering comprehensive legal services to businesses, including those in the crowdfunding industry. Our team of experienced legal professionals can assist CSPs operating in Cyprus in various ways:
- Navigating the complexities of the new regulatory framework and ensuring compliance.
- Guiding CSPs through the authorization application process and assisting with necessary forms and documents.
- Ensuring compliance with specific requirements, including drafting necessary documentation and advising on the ex-ante notification process for the KIIS.
- Assisting with fee calculation and management to maintain good standing with the regulatory authority.
- Providing ongoing legal support as regulations evolve and the crowdfunding industry continues to grow.
The new regulatory framework for Crowdfunding Service Providers in Cyprus presents both opportunities and challenges for businesses in the sector. Understanding the key aspects of the framework and ensuring compliance with regulations allows CSPs to thrive in this rapidly evolving industry.
Michael Chambers & Co LLC is committed to providing comprehensive legal services to Crowdfunding Service Providers in Cyprus. With our extensive knowledge of the regulatory landscape and dedication to client success, we can help your crowdfunding platform navigate the complexities of the new framework and ensure ongoing compliance. Contact us today to learn more about our services and how we can support your business in the ever-changing crowdfunding industry
