Consob and the Bank of Italy Are Available for Consultations

On October 21st, Consob and the Bank of Italy released a joint communication regarding the new European crowdfunding regulation.

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The joint communication from Consob and the Bank of Italy

In the communication, Consob and Bankitalia noted that, as of November 11th, 2023, only crowdfunding service providers for companies that have obtained authorization under the EU Regulation may continue to operate in Italy. And, further, although they have been designated by Parliament as the competent authorities for the authorization and supervision of crowdfunding service providers, they will only be able to receive formal applications for authorization following the adoption of the implementing legislative decree.

The two authorities note how, at the national level, the Regulations introduce for the first time a comprehensive framework for lending crowdfunding for businesses, while replacing the national regulatory framework applicable to equity crowdfunding portal operators. And they point out that the new Regulation presents additional complexities for platforms seeking authorization, requiring operators to comply with prudential requirements and have appropriate organizational arrangements to ensure adequate risk management and business continuity, as well as investor protection rules inspired by those of the MiFID2 Directive.

Readiness for consultations

Pending the completion of the process of regulatory compliance, Consob and the Bank of Italy, moreover, make themselves available to facilitate an orderly start-up of the new regime, through informal interlocutions to guide operators interested in the future submission of applications for authorization, also providing clarifications or preliminary considerations on the information and documentary elements to be attached to the applications.

To this end, they have made available a form for scheduling meetings, to be sent to both Consob and the Bank of Italy.

The new European regulation certainly opens up new opportunities for the industry, but it also presents elements of increased complexity. We summarize what we see as the main points.

Opportunities for crowdfunding platforms

1.Possibility for platforms to raise in all EU countries (with some constraints: at least English language, reporting to authorities, marketing activities subject to each country’s rules)

2.Possibility of “asset management”: platforms will be able to offer investors allocation of funds to different projects or financial instruments based on determining risk profiles.

3.Ability to place other financial instruments besides equity, p2p loans, and minibonds. For example, convertible loans, participatory financial instruments, etc.

More complexities for platforms and bidders

1. More complex licensing process (especially for lending platforms: Directors must have a high standard of professionalism ensured by past experience in finance and corporate affairs. Adequate organizational structure and organizational chart, indicating who is in charge of governing the different processes (e.g: Assessment Technical Analysis of Projects, Conflict of Interest Management Policy, Fraud Prevention Policy, Internal Compliance Officer, Complaints Policy, Whistleblowing Policy, Creditworthiness Analysis, Appropriateness Questionnaire Officer). The analysis of the risk related to each offering and cross-reference with the investor’s risk profile
   stringent policy on conflict of interest
   anti-money laundering: platforms will have to subject both bidders and investors to adequate verification. Platforms subject to supervision by Consob and Bank of Italy.
2. For businesses

Funding limit at 5 million
Prepare a prospectus (KIIS: Key Investment Information Sheet).

3. Increased investor protection

Sophisticated and Non-Sophisticated (less than 60k income or portfolio less than 100k) can invest max 5% assets or 1000 or take a test, through software provided by the platform.
Appropriateness questionnaire (Mifid): equity platforms have been doing this for some time, while lending platforms need to introduce it
Communication activities allowed according to each country’s rules.

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(Featured image by AbsolutVision via Unsplash)

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First published in Crowdfunding buzz, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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