Is The EU's New Crowdfunding Regulation An Opportunity For Lithuania?

• Published date: 03 August 2021
• Subject Matter: Finance and Banking, Technology, Compliance, Financial Services, Fin Tech
• Law Firm: Cobalt Legal
• Author: Ms Akvilė Bosaitė and Robertas Grabys

On the 5^th of October, the new regulation of the European Parliament and of the Council on European crowdfunding service providers for business was approved. Although crowdfunding activities are already regulated in Lithuania by national laws, this new regulation represents a real opportunity for Lithuania and Lithuanian crowdfunding services providers.

The New Regulation Will Bring More Expenses on Compliance

Crowdfunding service providers (CSPs) have been regulated in Lithuania for almost four years. During this period, the CSP market has been developing at a rapid pace. The amounts invested using CSPs have risen 12 times, from just over EUR 1 million in 2017 to over EUR 16 million in 2019. Such a rise in a short three-year period shows that the current regulations are enough to facilitate the growth of the CSP market. Nevertheless, considering the fact that under the EU's new regulation all current CSPs will be required to receive a EU-level license to continue their services, one must wonder whether new, more detailed, and more strict regulations will not adversely affect the local market. Compared to the current regime, the regulation will introduce more detailed and strict requirements regarding project owner evaluation, investor assessment, provision of information to investors, and rules on messaging and loan portfolio management, as well as more comprehensive requirements for internal procedures and policies. All these differences mean that crowdfunding operators will need to invest significant funds to improve their current systems and to initiate relicensing (although the regulation allows national supervisors to apply a simplified procedure). The period for preparation is only 24 months after the regulation enters into force. It is also noteworthy that the scope of Lithuanian and European regulations slightly differ. Under Lithuania's regulation, the threshold for the maximum amount gathered by one project owner is set at EUR 8 million, compared to only EUR 5 million in the EU's regulation - a reduction which can also be considered a negative change for the Lithuanian market.

The Benefits Outweigh the Additional Costs

Although there will be additional requirements and expenses related to aligning existing procedures with the requirements of the EU's new regulation, the positives outweigh the negatives. Under the current legal regime, unless they were willing to invest in complying with the different requirements of each EU member state, CSPs...