Crowdfunding platforms have always been considered a beneficial and relativity easy method to raise capital for various projects.
The EU, as an economic union, and the EU Institutions are consistently known for being in favour of increasing traceability of regulations. This is in addition to trying to create a level playing field for all stakeholders and economic players in the EU.
When it comes to crowdfunding, the Council of the European Union, which is composed of representatives from each Member State in the European Union and is divided into committees for each policy and legal adaptation, has issued a new draft regulation and directive to tackle the financial, regulatory hindrances, and lacunas that the previous framework (EU Regulation 2017/1129 and EU Directive 2019/1937) imposed.
The new draft framework entails the following key aspects:
- Yearly reporting duties to the European Securities and Markets Authority (hereinafter – ESMA).
- Registration as a crowd funder platform in a Member State that it wishes to operate.
- Increased AML due diligence that is in accordance with 5 AMLD and lacking a criminal record.
- Enhanced risk assessment and establishment of safeguards in accordance with 5 AMLD.
- The project owner is not commercially established or domiciled in a high-risk country, which is in accordance with 5 AMLD.
- A complete complaints procedure that is accessible both to ESMA and clients.
- In the case of outsourcing or white labeling, the liability still falls on the crowdfunding platform.
This new framework represents a shift that the EU has been experiencing in the last few years. Consequently, this has led to increased AML due diligence and new corporate best practices that are compliant with EU Law.
Although the draft still has to pass through EU Parliament for final authorization under the ordinary legislative procedure, and only if the EU Commission will not interfere or amend the proposed draft, the financial sector in the EU needs to brace itself towards the new regulatory horizon that is rapidly approaching it.
EMIs, banks and crowdfunding platforms should bear in mind that is not the sole framework it should adhere to. 6 AMLD, which will be in effect from December 2020, will serve as an additional onboarding hindrance when assessing KYC and onboarding best practices.
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In light of the recent Covid-19 pandemic, it is expected that the EU Institutions will take a step back from rigid legislative procedures and focus on the new financial package proposed by the Commission.
Be that as it may, it seems that the EU Commission has been more stringent towards AML offences and has decided to serve as a beacon of light in the fight against money laundering and counter-terrorist funding.
Will it prove to be successful? Only time, 6 AMLD, and FIUs can tell.
Ella Rosenberg is the founder of an Israeli- European Regulatory Consultancy Firm