The purpose of the draft law 7825, submitted to the Luxembourg Parliament (Chambre des Députés) on 21 May 2021 (the “Draft Law”), is to operationalise Regulation (EU) 2020/1503 of 7 October 2020 on the European crowdfunding service providers for business (the “Crowdfunding Regulation”).
Background
The Crowdfunding Regulation, which will be directly applicable in all Member States as of 10 November 2021, aims to foster the development of crowdfunding platforms and to establish a safe legal framework for crowdfunding activity across the EU.
The Crowdfunding Regulation, once applicable, will establish a new legal status of European crowdfunding service providers (the “ECSPs”) and will allow ECSPs to offer cross-border crowdfunding services based on a single set of rules under the European passport mechanism.
More information on the Crowdfunding Regulation is available here.
Licencing regime and supervision of ECSPs
As of 10 November 2021, the provision of crowdfunding services from Luxembourg will be subject to the previous acquisition of a license as ECSP. The Draft Law designates the CSSF as the competent authority for the prudential supervision of ECSPs.
In order to ensure compliance with the provisions of the Crowdfunding Regulation, the CSSF shall be vested with all necessary supervisory and investigative powers listed in Article 30(1) and (2) of the Crowdfunding Regulation, consisting mainly of:
- requesting information and documents;
- conducting investigations and on-site inspections in order to gain access to documents or other data in any form;
- suspending or prohibiting crowdfunding offers, marketing communications, as well as the provision of crowdfunding services, depending on the gravity of the infringement;
- publicising the failure of an ECSP to comply with its obligation under the Crowdfunding Regulation;
- transferring existing contracts to another ECSP subject to the agreement of the clients and the receiving ECSP in cases of licence withdrawal; and
- the transmission of information to the State Attorney, which may result in criminal prosecution.
Furthermore, pursuant to Article 20-17 of the Draft Law, if an ECSP does not comply with its obligations under the Crowdfunding Regulation or refuses to cooperate during an investigation or a request for the provision of information and documents, the CSSF shall have the power to impose the following administrative sanctions:
- a public statement indicating the name of the natural or legal person responsible for the violation, and the nature of the violation;
- an order requiring the natural or legal person to cease the conduct constituting the infringement and to desist from a repetition of that conduct;
- a professional ban on exercising management functions within an ECSP for a maximum period of five years (5) against any member of the management body of the legal person responsible for the violation or any other natural person held responsible for the violation;
- an administrative fine up to EUR 500,000 or up to 5 % of the total annual turnover as shown in the last available financial statements approved by the management body for legal persons or up to EUR 500,000 for natural persons; and
- an administrative fine which can be up to two times the benefit derived from the violation, if this can be determined, even if this amount exceeds the maximum amounts referred above.
Enhanced investor protection
The new legal regime will result in enhanced investor protection. More specifically, investors on crowdfunding platforms will benefit from strengthened protection as a result of the enhanced CSSF supervision and sanctioning powers and the introduction of clear rules on information disclosure and liability regime of project owners and ECSPs.
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