Regulation of crowdfunding in Ireland
In contrast to the UK, there is currently no tailored regulatory or authorisation regime for crowdfunding platforms in Ireland.
“Crowdfunding” in its own right is not a regulated activity, i.e. there is currently no legislation specifically aimed at regulating crowdfunding in Ireland. However, certain activities of a crowdfunding platform could require authorisation where, for example, the platform carries out a regulated service.
For example, certain activities of an equity based crowdfunding platform could constitute MiFID[1] investment services. The reception and transmission of orders in relation to one or more financial instruments (including transferable securities such as shares), the execution of orders on behalf of clients and the provision of investment advice constitute MiFID “investment services” and require authorisation under the Irish MiFID Regulations[2].
With regard to peer-to-peer (P2P) lending platforms, lending to corporates in Ireland is not a regulated activity. However, if a platform arranges loans to consumers (i.e. natural person acting outside their business), it could fall within the definition of a “credit intermediary” in the Consumer Credit Act 1995 and would require an authorisation from Competition and Consumer Protection Commission.
A crowding platform could also be engaged in regulated payment services, such as money remittance under the Payment Services Directive (PSD2)[3].
CBI approach
The CBI is likely to have regard to the European Securities and Markets Authority (ESMA) December 2014 opinion on investment-based crowdfunding[4] in determining whether the activities of a firm fall within the scope of EU financial services legislation, such as MiFID or PSD2, that would require authorisation.
If a firm intends to carry out a MiFID investment service or payment service, it would require authorisation in Ireland. With regard to the latter, it may be possible to partner with a regulated payment service providers to avoid having to become an authorised payment service provider.
If a third country firm’s activities fall within the definition of MiFID investment services, the firm may be able to avail of a third country regime in the Irish MiFID Regulations. This would require the establishment of a third country branch, where dealing with retail investors. There is also the potential to rely on a “Safe Harbour” regime, where dealing with professional clients.
Before submitting an application for authorisation, it may be possible for a firm to liaise with the CBI’s Innovation Hub. The Innovation Hub allows fintech firms to engage with the CBI outside of existing formal regulator/firm engagement processes and is open to enquiries from providers or potential providers of financial products or services that are innovative and sufficiently mature. However, it should be noted that the CBI does not offer regulatory sandbox testing, unlike its counterparty in the UK (the Financial Conduct Authority).
Domestic and EU developments in this area
Domestic regime
On 21 April 2017, the Department of Finance announced the launch of a consultation on the regulation of crowdfunding in Ireland, followed by a Feedback Paper in January 2018. The consultation invited industry views to inform its decision on whether to regulate crowdfunding.
The Department of Finance’s consultation crossed with an announcement in October 2017 by the European Commission that it would publish a proposal for an EU-wide framework on crowdfunding and P2P lending by the end of Q1 2018.
In light of this, the Department of Finance stated in the Feedback Statement that rather than introduce a domestic crowdfunding regime in Ireland, it would monitor the progress of the Commission’s proposal, and implement any EU regulations into Irish law.
However, later in its IFS Action Plan[5], published in March 2019, the Department of Finance stated:
“In 2018, the European Commission published a draft regulation on crowdfunding providers on a European level, which will provide a European regulatory regime and authorisation for crowdfunding service providers operating on a cross-border basis. It is proposed to regulate crowdfunding in Ireland and enact a domestic regulatory regime, in parallel with the European regulation, to ensure sufficient consumer protection for unsophisticated investors and to facilitate the growth of crowdfunding as an alternative source of finance for Irish SMEs. An update report will be provided in Q4.”
We are continuing to monitor developments in this area.
European Regulation
In March 2018, as part of its Fintech action plan, the European Commission proposed a European Regulation on Crowdfunding Service Providers.
On 5 October 2020, the European Parliament announced that it has adopted the Regulation and the Directive making amendments to the MiFID II Directive relating to crowdfunding. Provisional editions of the adopted texts of the legislative resolutions for both the Regulation and the Directive have been published.
The Regulation will apply to:
- P2P crowdfunding platforms facilitating ‘business funding’ (lending to consumers is out of scope and remains separately regulated at an EU level by the Consumer Credit Directive (Directive 2008/48/EC)); and
- investment-based crowdfunding platforms in relation to transferable securities only.
The Regulation will apply to all European Crowdfunding Service Providers (ECSP) in respect of offers of EUR5 million calculated over a period of 12 months per project owner. Larger operations will be regulated by MiFID and the Prospectus Regulation.
Prospective ECSPs will be required to apply for authorisation from the national competent authority (NCA) of the member state in which they are established. ECSPs will also be able to provide their services cross-border by way of passporting. Supervision will be carried out by national competent authorities with ESMA facilitating and coordinating cooperation between member states.
The adopted rules provide a high level of investor protection, whilst taking into account compliance cost for providers: they set out common prudential, information and transparency requirements and include specific requirements for non-sophisticated investors.
To the extent that an ECSP is also carrying on a payment service in the course of providing the crowdfunding platform, it may be required to be separately authorised under PSD and exercise the passport under the PSD in relation to that service unless the service will be performed by an appropriately authorised third party service provider.
The Regulation will enter into force 20 days following publication in the Official Journal of the EU (OJ). It is due to apply 12 months later. The Directive is also due to enter into force 20 days following publication in the OJ.
The Regulation now needs to be adopted by the European Parliament at second reading before it can be published in the Official Journal and enter into force.
How we can assist?
We are well placed to consider whether the proposed activities of a crowdfunding platform constitute regulated activities under MiFID or PSD or other regulatory regimes or whether the firm can avail of an exemption.
We can also assist with any required engagement with the CBI, if deemed necessary and with the submission of any required authorisation application.
In terms of obtaining authorisation at this juncture instead of waiting for the pan European authorisation regime, existing crowdfunding platforms which are authorised under MiFID II, PSD, the Electronic Money Directive (Directive 2009/110/EU) or the Capital Requirements Directive, should be able to benefit from a simplified authorisation procedure to become ECSPs.
[1] Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU
[2] S.I. No. 375 of 2017 European Union (Markets In Financial Instruments) Regulations 2017
[3] Directive 2015/2366/EU
[4] https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1378_opinion_on_investment-based_crowdfunding.pdf
[5] https://assets.gov.ie/5956/230119143314-bc973a795c08402994719187fdf74008.pdf
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