Regulating the Crowdfunding Playing Field – The EU’s New Game?

Crowdfunding platforms have always been considered a beneficial and relativity easy method for raising capital for various projects.
The EU, as an economic union, and the EU Institutions have always been in favour of increasing transability of regulations, in addition to trying to create a level playing field for all stakeholders and economic players in the EU.
When it comes to crowdfunding, the Council of the European Union, which is composed of representatives of each Member State of the European Union and divided into committees for each policy and legal adaptation, has issued a
new draft regulation and directive to tackle the financial, regulatory hindrances, and lacunas that the previous framework ( EU Regulation 2017/1129 and EU Directive 2019/1937) has imposed.
The new draft framework entails the following key aspects-

Yearly reporting duties to the European Securities and Markets Authority (hereinafter- ESMA).

Registration as a crowd-funder platform in a Member State it wishes to operate.

Increased AML due diligence, that will have to be in accordance with 5 AMLD, lack of criminal record.

Enhanced risk assessment and establishment of safeguards in accordance with 5 AMLD.

The project owner is not commercially established or domiciled in a high-risk country, in accordance with 5 AMLD.

Complete complaints procedure, which is accessible both to ESMA and clients.

In the case of outsourcing or white labeling, the liability still falls on the crowdfunding platform.

This new framework represents a shift that the EU has been experiencing in the past few years, which has led to increased AML due diligence and new corporate best practices that are compliant to EU Law.

Although the draft still has to pass the EU Parliament for final authorization under the ordinary legislative procedure,
and only in case the EU Commission will not interfere or would like to amend the proposed draft, the financial sector in the EU needs to brace itself towards the new regulatory horizon which is rapidly approaching the EU.
EMIs, banks, and crowdfunding platforms should bear in mind that is not the sole framework it should adhere to. 6 AMLD, which will take force in December 2020, will serve as an additional on-boarding hindrance when assessing KYC and on-boarding best practices.
In light of the recent Covid-19 pandemic, it would be expected from the EU Institutions to take a step back from rigid legislative procedures and focus on the new financial package proposed by the Commission.
Be that as it may, it seems that the EU Commission has taken AML offences in a stricter manner, and has decided to serve as a beacon of light in the fight of money laundering and counter-terrorist funding.
Shall it prove to be successful? Only time, 6 AMLD, and FIUs can tell.
 
Ella Rosenberg is the founder of an Israeli- European Regulatory Consultancy Firm