MFSA Issues New Crowdfunding Rules

On the 25th of January 2022, the MFSA issued the new crowdfunding rules (“the Rules”), referring and detailing better the provisions as listed in Regulation (EU) 2020/1503, termed the European Crowdfunding Service Providers Regulation (“ECSP Regulation”) that was recently directly applicable from the 10th November 2021. The Rules issued by the MFSA, also make reference to the Implementing and Regulatory Technical Standards issued under the ECSP Regulation and the Rules started to apply from the date of issuance.

A crowdfunding service is defined within the ECSP Regulation as the matching of business funding interests of investors and project owners through the use of a crowdfunding platform and which consists of the following activities:

1. The facilitation of granting of loans;
2. The placing without a firm commitment basis of transferable securities and admitted instruments for crowdfunding purposes issued by project owners or a special purpose vehicle, and the reception and transmission of client orders in relation to those transferable securities and admitted instruments for crowdfunding purposes.

The Rules are divided into two chapters that deal with different obligations that such Crowdfunding Service Providers are subjected to. The first chapter deals with the technical standards as per the ECSP Regulation and chapter 2 deals with marketing requirements and restrictions applicable when providing such services. The purpose of the provisions delineated within the ECSP Regulation is to formulate uniform rules and protect investors.

Chapter 1 makes reference to the different segments of technical standards also by way of the Regulatory Technical Standards and Implementing Technical Standards issued under the ECSP Regulation. These various sections of provisions deal with the following:

• Complaints Handling;
• Conflicts of Interest requirements;
• Business Continuity Processes;
• Authorisation;
• Entry Knowledge Test and the Simulation of the ability to Bear Losses;
• Key Investment Information Sheet;
• Implementing Technical Standards relating to Reporting obligations;
• Information to clients on Default Rates;
• Individual Portfolio Management of Loans offered;
• Disclosure of Information to investments and requirements on credit risk assessment, loan pricing and risk management;

Chapter 2 details the marketing requirements as formulated by the MFSA and applicable to:

• Any marketing communication or information issued in or from Malta; and
• Any marketing communication or information which is circulated, published, broadcasted or otherwise received in Malta.

The information provided in marketing communications must satisfy the following requirements:

• Understood by the average member of the audience it intends to target or where it is likely to be received;
• Up to date and relevant to the means of communication used;
• Consistently presented in same language throughout all its marketing mediums;
• Fair, clear and not misleading, especially with regards to design and presentation of such communications;
• Consistent with the information listed in the Key Investment Information Sheet;
• Important items, statements of warnings are prominent and not obscured in any manner;
• Cannot disproportionately encourage investment in any one crowdfunding project;
• Clearly detail any assumptions made when issuing a marketing communication;

Chapter 2 closes off by providing guidance and listing obligations that relate to warning statements to be used in a number of circumstances, such as making reference to past performance, detailing risks involved in investing through the Crowdfunding Service Provider.

Further information on the Rules can be found here: https://www.mfsa.mt/wp-content/uploads/2022/01/MFSA-Crowdfunding-Rules.pdf

About the Author

This article has been authored by Dirk Urpani, CSB Group Legal Counsel & Business Advisor. For any additional information or support required please contact us on [email protected].