EUROPEAN CROWDFUNDING LICENSE UNDER ECSP REGULATION. PAN-EUROPEAN CROWD FINANCING

Crowdfunding platforms are intermediaries helping investors and lenders find businesses that need financing and helping businesspeople raise capital. Crowd financing is the modern alternative to traditional bank financing and an effective solution for SME and start-up financing.

The Regulation on European Crowdfunding Service Providers (ECSP) came into force on 10 November 2021. The European Union is the world’s biggest common market, with 450 million consumers and more than 20 million businesses. The ECSP Regulation creates common crowdfunding rules and a single licence passporting regime across the European Union and European Economic Area (EU/EEA), allowing provision of crowdfunding services across the common market on the basis of a licence issued in one member state.

The aim of the ECSP Regulation is to support cross-border funding and improve access to this innovative form of finance for small and medium enterprises (SMEs) and start-ups. European banks and other traditional lenders are not able to finance all businesses due to risk regulations and other restrictions. Crowdfunding platforms provide a marketplace for lenders to fill the gaps in business financing. The interest rate paid by crowdfunding and P2P financing platforms to investors is typically higher than that offered by traditional financial institutions. Crowdfunding is an effective financing tool for start-ups, allowing lenders to acquire a share in start-ups, lend through loan agreements, or participate via securities and token issuances.

Modern instruments such as Token Offerings and Security Token Offerings (STOs) can be used to raise capital for investment projects through licensed crowdfunding platforms. Securities offered through licensed crowdfunding platforms are eligible for public distribution across the EU/EEA market.

Lithuania was one of the few EU member states with clear and transparent national crowdfunding regulation prior to the adoption of the ECSP Regulation. The Lithuanian crowdfunding framework was constructed in alignment with ECSP requirements, enabling passportisation of the Lithuanian national crowdfunding licence across all EU/EEA member states and making it a truly pan-European authorisation.

Lithuania is among the first EU/EEA jurisdictions to introduce a fully passportable pan-European crowdfunding licence under the ECSP Regulation. Applicants for a Lithuanian ECSP licence obtain a pan-European authorisation valid across the EU/EEA. Licensed crowdfunding platform operators are treated as licensed financial advisory firms and do not require additional licensing.