Crowdfunding remains relatively small but is developing rapidly and, if appropriately regulated, it has the potential to be a key source of financing for SMEs over the long term, the European Commission has found.
The European Commission has published a report on the EU crowdfunding sector, as part of the Capital Markets Union Action Plan. It believes that supporting innovative ways of connecting savings to growth and diversifying the funding sources for European businesses is crucial to improving growth and job creation in Europe.
EU member states have begun to put in place national frameworks to support the growth of the crowdfunding sector to ensure investors are appropriately protected.
These national frameworks are broadly consistent in terms of the objectives and outcomes they seek to achieve, but are tailored to local markets and domestic regulatory approaches. As crowdfunding remains largely local and the sector is changing rapidly, there is no strong case for an EU level framework at this juncture, the Commission said, noting that it would meet regulators twice a year to keep developments in the sector under review.
Crowdfunding remains a regional or local phenomenon
“This will ensure the Commission is able to respond in a timely manner if further steps to support regulatory convergence are needed, both to promote the development of the sector and to ensure appropriate investor protection,” it said.
Crowdfunding is still small but growing fast in Europe. Based on available data, approximately €4.2 billion was successfully raised through crowdfunding platforms in 2015 in the EU, compared with €1.6 billion in 2014.
In 2015, €4.1 billion was raised through crowdfunding models that entail a possible financial return for those contributing the funds – for example, through equity investments or loans. Crowdfunding projects were present in all member states. However, activity is currently concentrated in a small number of member states. The UK has by far the largest amount raised and number of projects funded through crowdfunding.
At the same time, cross-border project funding is still limited and crowdfunding remains a regional or local phenomenon to a large extent. Several member states have already introduced or are planning to introduce domestic bespoke regimes on crowdfunding. Overall, these domestic rules aim to support the development of this source of funding, while addressing key risks that may arise, notably for investors.