The first EU-wide regulation of the crowdfunding sector has today cleared an important legislative hurdle.
The European Parliament's Economic and Monetary Affairs Committee approved a report by Conservative MEP Ashley Fox and agreed to send it straight into talks with the European Commission and Council. It is now hoped the legislation can be passed before the European elections in May 2019.
The proposals would introduce common regulations and standards that crowdfunding service providers (CSPs) can opt into. Currently separate national rules limit cross-border activity.
Mr Fox said: "Today's agreement is a key stage in tapping crowdfunding's potential to become an important source of funding for small businesses and micro-enterprises across the EU.
"The legislation creates a European passport for CSPs, providing protection for both investors and those seeking to raise finance."
Different levels of regulation would apply to platforms depending on the complexity of their operations. Member state authorities would oversee the new pan-EU system alongside their own national rules.
Mr Fox said: "The committee has reached a sensible compromise on supervision of the new system, acknowledging the role of the European Securities and Markets Authority as a mediator while recognising that national competent authorities are best placed to supervise and authorise CSPs.
However, he was disappointed that MEPs decided against making the passport available to platforms dealing in initial coin offerings (ICOs) – a type of crowdfunding which often involves cryptocurrencies.
"This market is currently unregulated and open to abuse and the committee has missed the opportunity to take an initial step towards imposing standards and protections for an industry that is an excellent funding stream for tech start-ups," Mr Fox said.
"Neverthless, I am happy that my report has sparked action in this area and that MEPs have today agreed to ask the Commission to come forward with new legislative proposals on the regulation of ICOs."
The crowdfunding regulation is the first to emerge from the European Commission's Action Plan, aimed at harnessing technological innovation in financial services.