Italy, after a two-year wait, has also implemented the European crowdfunding regulation to provide greater protection for investors and greater transparency for crowdfunding platforms. Crowdfunding regulation is an important issue in promoting the financing of start-ups and SMEs, and this new legislative decree should help promote a safer and more reliable investment environment for Italian consumers.
Legislative Decree No. 30 of March 10, 2023 implements Regulation (EU) 2020/1503 on European crowdfunding service providers for businesses and amends Regulation (EU) 2017/1129 and Directive (EU) 2019/1937. The legislative decree makes amendments to Legislative Decree No. 58 of February 24, 1998.
The decree stipulates that the Bank of Italy, having consulted with Consob, shall authorize as crowdfunding service providers banks, payment institutions, electronic money institutions, and financial intermediaries registered in the register referred to in Article 106 of Legislative Decree September 1, 1993. In addition, the Bank of Italy and Consob work in a coordinated manner to minimize burdens on crowdfunding service providers.
The legislative decree also establishes the requirements for participants in the capital of the crowdfunding service provider holding at least 20 percent of the capital or voting rights and the checks against project owners. In addition, shares in limited liability companies may be the subject of a public offering of financial products, including through crowdfunding platforms.
The legislative decree provides for sanctions for irregularities detected in the exercise of supervisory activities. Investment factsheets are drafted in at least one of the official languages of the EU member state.
The new Regulation (EU) 2020/1503 on crowdfunding services for businesses will have a significant impact on the European capital market by harmonizing conduct of business rules at the EU level and improving access to finance for small and medium-sized enterprises.
The main objective of the Regulation is to increase the efficiency and diversification of the EU capital market by creating a single European market for crowdfunding and providing access to alternative financing instruments to bank loans.
To achieve this goal, the Regulation establishes uniform requirements for the provision of crowdfunding services, organization, authorization and supervision of providers, operation of platforms, transparency, and marketing communications.
Key new features of the Regulation, in brief, include a single authorization mode for the entire European Union, a centralized supervisory system under ESMA, a European passport for crowdfunding platform operators, and regulation of crowdfunding services that facilitate lending.
In addition, the Regulation introduces a standardized disclosure template with all key investment details (Key Investment Information Sheet – KIIS), an entry questionnaire for verification of nonqualified investors, and transparency and governance requirements for platforms.
Let’s look specifically at the main players.
Bank of Italy and Consob
With the entry into force of Regulation (EU) 2020/1503 of the European Parliament and of the Council on crowdfunding service providers for businesses, Consob and Banca d’Italia have adapted to the new national legislation. Consob is the authority responsible for ensuring the transparency and fairness of crowdfunding services, while the Bank of Italy is in charge of capital adequacy, risk containment and holdings, corporate governance and business continuity and organization requirements, administrative and accounting organization, internal controls, and outsourcing.
Consob, after consultation with the Bank of Italy, may authorize crowdfunding service providers under Article 12 of Regulation (EU) 2020/1503 and withdraw authorization under Article 17 of the same Regulation (EU). In addition, Consob is the single point of contact for cross-border administrative cooperation between competent authorities and with ESMA.
The BoI, having consulted with Consob, may authorize banks, payment institutions, electronic money institutions, and registered financial intermediaries as crowdfunding service providers and withdraw authorization. In addition, the BoI is in charge of compliance with the obligations imposed by Regulation (EU) 2020/1503 on capital adequacy, risk containment and holdings, disclosure, corporate governance and general organizational and business continuity requirements, administrative and accounting organization, internal controls, remuneration and incentive systems, risk management, internal audit and outsourcing, requirements of crowdfunding service provider capital participants holding at least 20 percent of the capital or voting rights, and checks against project owners.
Memoranda of understanding between the BoI and Consob cover the exchange of information and the exercise of competencies and powers in relation to irregularities detected.
Investors
Investors who choose to participate in a crowdfunding offering through an online platform must comply with certain membership conditions set by the platform. Specifically, in the event that the crowdfunding offering is successful and investors decide to avail themselves of the alternative scheme provided, they must mandate the appointed intermediaries to carry out the registration of the units in their name. This process is mandatory and allows subscribers to request direct header of their units at any time.
Appointed intermediaries also issue to subscribers or subsequent purchasers a certification proving their ownership of the units, and there are no fees or charges for the transfer of the units. Crowdfunding service providers provide potential investors with a sheet containing key investment information, which is prepared by the project owner.
The project owner is responsible for the information in the investment card, while the crowdfunding service provider is responsible for the information provided in it. In addition, the fact sheet on the investment must be written in at least one of the official languages of the EU member state where the crowdfunding offering is made.
Limited Liability Companies.
In summary, the regulations provide that shares in limited liability companies can be the subject of public offerings of financial products through crowdfunding platforms, provided that the national legislation is adapted to Regulation (EU) 2020/1503. For the subscription and disposal of these units, it is necessary to use intermediaries licensed to provide investment services. In addition, within 30 days of the closing of the offering, licensed intermediaries must file with the commercial register a certification that they are members on behalf of third parties. Costs related to the certification are borne by the intermediaries.
Anticipated sanctions
Legislative decree implementing Regulation (EU) 2020/1503 provides for the establishment of administrative sanctions against crowdfunding service providers in case of non-compliance with the stipulated provisions. Administrative sanctions may be imposed in case of violation of the provisions contained in the delegated acts and regulatory technical standards, provisions under Article 39 of Regulation (EU) 2020/1503, provisions against crowdfunding service providers other than Article 2 of Regulation (EU) 2020/1503, and provisions on marketing communications identified by Consob. The amount of the administrative fine varies from a minimum of 500 euros to a maximum of 500,000 euros, or up to 5 percent of turnover, when that amount exceeds 500,000 euros.
The entry into force of the new crowdfunding regulation represents an important turning point for the alternative finance sector in Italy. Increased competitiveness among platforms and the possible integration of these with other entities in the sector are just some of the expected effects, as well as increased funding opportunities for Italian and European startups and SMEs.
The measure comes into force on April 8, 2023.
Here is the text published in the Official Gazette.