European Crowdfunding Service Providers under the ECSPR

It is particular important for investors to be aware that the crowd investments through platforms under the ECSPR are neither subject to deposit protection, nor to protection provided by an investor compensation scheme. This is a considerable difference compared to traditional securities transactions through investment firms and credit institutions. The Key Investment Information Sheet (KIIS) must also inform that this is the case.

If the crowdfunding platform wishes to broker other instruments such as participations by limited partners, participation rights or qualified subordinated loans, then the offering does not fall within the scope of the ECSPR, but that of the AltFG – see below. Offerings outside of the scope of the ECSPR are not possible in a straightforward manner, without taking into account any regulation that applies in the other country. Projects by consumers do not fall within the regulatory framework (typically in the case of P2P lending models; such models would be addresses strictly under national law, see further below. Crowdfunding without a platform also continues to remain a purely national issue (outside the scope of the ECSPR); i.e. without a publicly accessible Internet information system that has a single operator. This may for example relate to funding arrangements that crowdfunded, which are conducted directyl between a municipality and its inhabitants.

Article 27 ECSPR contains specific requirements regarding the content, layout and distribution of marketing communications in relation to crowdfunding platforms under the Regulation. They must be clearly recognisable as marketing communications, must provide a balanced view of the offers on the platform and must be fair, clear, and not misleading. In addition, if being distributed in Austria, they must also be available in German. To assist internationally active platform operators the European Securities and Markets Authority (ESMA) has made an overview about the national rules for marketing communications in the individual EU Member States on its website.

In accordance with Article 25 ECSPR, crowdfunding service providers are allowed to establish secondary market platforms, on which investors may sell on their crowd investments. Such platforms do not however function as exchanges (no matching!) or as brokers (no proprietary trading by the operator!), but instead only function as “bulletin boards”, that buyers and sellers use to find one another.

Under the Regulation, a platform operator shall only be allowed to receive payments on its own account and to transmit them onwards provided that it is also authorised in accordance with the Payment Services Act 2018 (ZaDiG 2018). The platform operator shall also only be allowed to hold payment accounts for customers where it holds an authorisation as a credit institution under the Austrian Banking Act (BWG; Bankwesengesetz). Similarly, a platform operator shall only be allowed to take over the custody of investors’ securities, where it is authorised accordingly to do so.

For the first time, the ECSPR enables Europe-wide and prospectus-free distribution of securities via a platform.

The Key Investment Information Sheet (KIIS) which is not required to be pre-approved by the FMA is the successor to a capital market prospectus approved by the FMA. Where an issuer/project owner exclusively uses platforms under the ECSPR during the course of a year for issuance and exclusively for the issuance of securities, then they offer up to EUR 5 million in securities without the need for a prospectus publicly and throughout Europe, or less where they also where it also receives loans through such platforms. It is a different case where within a year securities underwriting is also conducted outside of platforms under the ECSPR without a prospectus, under the AltFG, or using a simplified Schedule D prospectus in accordance with Article 12 para. 3 KMG 2019 (and therefore making under an exemption from a prospectus pursuant to Article 1 (2) lit. (c) point (ii) ECSPR).

For every issue, the issuer must therefore remain aware of what issues they have already made during the last 12 months. Issues of securities up to EUR 5 mn per year, that are either issued without a prospectus under AltFG or using a simplified prospectus under Schedule D pursuant to Article 12 para. 3 KMG 2019, shall in any case count towards the calculation of the EUR 5 mn threshold under the ECSPR. For example, if during the last 12 months prior to using a platform under the ECSPR EUR 1 mn of securities have been issued without a prospectus under the AltFG and EUR 2 mn under a simplified prospectus under Schedule D under the KMG 2019, then the issuer shall only be allowed to issue a further EUR 2 mn in crowdfunding offers (securities and loans) on a platform under the ECSPR. Conversely, crowdfunding offerings on platforms under the ECSPR are also to be calculated in the limits for Schedule D prospectuses pursuant to Article 5 para. 3 (for investments) and Article 12 pars. 3 KMG 2019 (for securities). The issuance of investments on the other hand does not count towards the thresholds set out in the ECSPR.

Previously it was possible to offer up to EUR 2 mn per year in investments (e.g. participation rights, qualified subordinated loans of AltFG platforms and up to EUR 2 mn in securities without a prospectus. Since the entry into force of the ECSPR, the intermediation of transferable securities on Internet platforms of under EUR 5 million is generally restricted to licensed crowdfunding service providers. In the remaining scope of application of the AltFG (i.e. also when offering securities outside of a platform) only an information document under the AltFG needs to be drawn up, that is scrutinised by a tax adviser, attorney etc., filed at the Verein für Konsumenteninformation (VKI) and made available to investors. In addition it must be ensured that all AltFG issuance of an issuer and issuances under simplified Schedule D prospectuses, all offerings of securities that are exempted under the EU Prospectus Regulation in another EU Member State as well as crowdfunding offerings on platforms under the ECSPR over the course of a period of one year in total shall not be allowed to exceed the amount of EUR 5 mn, otherwise an investment prospectus must be drawn up for investments, and a prospectus under the EU Prospectus Regulation for securities. Moreover, over a period of seven years the outstanding (i.e. not yet repaid) amount of all moneys received from the issuance of investments under the AltFG shall not be allow to exceed EUR 5 mn, otherwise the corresponding prospectus is required to be drawn up.

All public offerings and non-public offerings of securities and investments in Austria are generally required pursuant to Article 24 KMG 2019 to be filed in the New-Issue Calendar that is administered by the OeKB’s notification office. This reporting obligation specifically does not apply for certain issuances outside the scope of application of the EU Prospectus Regulation as well as certain issuances under the Regulation that are exempted from the requirement to publish a prospectus.

It is important in this context that in the in the Supplementary Act on the Implementation of the ECSPR that issuances of securities and investments under the KMG 2019 of under EUR 2 mn per year are excluded from the reporting obligation. Securities offerings that are offered via platforms under the ECSPR as also not required to be filed with New-Issue Calendar, since according to the Supplementary Act the KMG 2019 does not apply for crowdfunding offerings within the scope of application of the ECSPR.

In the event of a breach of the obligation to publish a prospectus, the FMA may impose severe administrative penalties when securities (maximum fine EUR 700,000) or investments (maximum fine EUR 100,000) are publicly offered without an orderly prospectus. Furthermore, an announcement is also made on the FMA website, that a fine and its amount has been imposed against a specific person for such a breach.