The European Securities and Markets Authority (ESMA) has released a new document outlining its opinion, the rules and advice on investment-based crowdfunding.
The aim of the documentation is to ensure all EU states are aligned in their policies and these policies allow for better regulatory and supervisory control. It will also ensure lesser-known or untrustworthy crowdfunding platforms are regulated in the same way as the larger sites.
Steven Maijoor, ESMA Chair, said: “ESMA’s aim is to enable crowdfunding to reach its potential as a source of finance, while ensuring that risks to users of crowdfunding platforms are identified and addressed in a proportionate and convergent way across the EU.
“We believe that there are benefits both for investors as well as for platforms by operating inside rather than outside the regulated space.
The ESMA looked at different models of crowdfunding, including equity-based and rewards-based platforms, saying there’s not a one-size-fits-all model fro crowdfunding, so each platform should be assessed based on its merits rather than applying a blanket legislation to all.
ESMA says it wants the EU to come up with guidelines to cover some holes in the current legislation though, including ensuring crowdfunding platforms have a reserve of money to re-pay investors should the project not go ahead after the money has been taken. This would prevent investors from being out of pocket should fraudsters advertise new business ideas on the sites.
The new recommendations will ensure crowdfunding continues to be seen as a viable investment for investors, whether they are experienced or not, while providing them with extra security. ESMA also hopes it will also encourage more businesses to advertise their services and drum up funding for new ideas on a wider range of platforms.