European Authorities Tell Crowdfunders To Get a Move On
Remember the need for speed? Sadly, we’re not talking Top Gun, but crowdfunding… Our friends at Crowdfundinsider report on the European way of moving things on, and discover that the Europeans themselves find the slowness of the bureaucracy frustrating. It’s possibly a very, very small silver lining in the dark cloud of Brexit…
The European Securities and Markets Authority (ESMA) has posted a statement encouraging crowdfunding providers to speed things up in migrating to the new pan-European rules.
At the end of 2021, the European Union approved a new regulatory regime that enables issuers to raise capital online across all member states. Companies may raise up to €5 million via securities crowdfunding platforms. These new rules, European Crowdfunding Service Providers Regulation (ECSPR) are designed to boost the nascent sector of finance to make the market more effective, improving access to capital for early-stage firms.
Yet these updated rules require that a crowdfunding platform must be approved at the member state level by the relevant authority. This has caused a few bumps along the way as each country currently has different rules (and different regulators). Both Germany and France have requested an extension on the transition period for another year. Currently, the deadline is November 2022 but the regulation did allow for a possible extension.
ESMA states that “Crowdfunding Service Providers” (CFPs) that offer their services only on a national basis currently benefit from a transitional period that is set to expire on this November. ESMA “expresses concerns” of possible detrimental consequences an absence of an extension may have on “some” national crowdfunding markets.
ESMA adds that investor protection and convergence concerns may arise from an extension of the transitional period beyond this November. ESMA suggests that the European Commission explores the possibility of applying this extension to crowdfunding service providers currently operating only on a national basis that have applied for authorization prior to October 1, 2022.
ESMA says that it strongly advises ECSPs to speed things up and transition to the new regime by filing the required application as soon as possible.
Historical Performance And IFISA Process Guide
- Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
- Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
- Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
- Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
- Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.