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(1) Crowdfunding is increasingly an established form of alternative finance for start-ups and small and medium-sized enterprises (SMEs), typically relying on small investments. Crowdfunding represents an increasingly important type of intermediation where a crowdfunding service provider, without taking on own risk, operates a digital platform open to the public in order to match or facilitate the matching of prospective investors or lenders with businesses that seek funding. Such funding could take the form of loans or the acquisition of transferable securities or of other admitted instruments for crowdfunding purposes. It is therefore appropriate to include within the scope of this Regulation both lending-based crowdfunding and investment-based crowdfunding, since those types of crowdfunding can be structured as comparable funding alternatives.

(2) The provision of crowdfunding services generally involves three types of actors: the project owner that proposes the project to be funded, investors who fund the proposed project, and an intermediating organisation in the form of a crowdfunding service provider that brings together project owners and investors through an online platform.

(3) Crowdfunding can contribute to providing access to finance for SMEs and completing the Capital Markets Union (CMU). Lack of access to finance for SMEs constitutes a problem even in those Member States where access to bank finance has remained stable throughout the financial crisis. Crowdfunding has emerged and become an established practice of funding business activities of natural and legal persons. Such funding takes place through online platforms; the business activities are typically funded by a large number of people or organisations; and the businesses, including business start-ups, raise relatively small amounts of money.

(4) In addition to providing an alternative source of financing, including venture capital, crowdfunding can offer other benefits to businesses. It can validate a business idea, give entrepreneurs access to a large number of people providing insights and information, and be a marketing tool.

(5) Several Member States have already introduced domestic bespoke regimes on crowdfunding. Those regimes are tailored to the characteristics and needs of local markets and investors. As a result, the existing national rules diverge across the Union as regards the conditions of operation of crowdfunding platforms, the scope of permitted activities and the authorisation requirements.

(6) The differences between the existing national rules are such that they obstruct the cross-border provision of crowdfunding services and thus have a direct effect on the functioning of the internal market in such services. In particular, the fact that the legal framework is fragmented along national borders creates substantial legal costs for retail investors who often face difficulties in determining the rules applicable to cross-border crowdfunding services. Therefore, such investors are often discouraged from investing cross-border by means of crowdfunding platforms. For the same reasons, crowdfunding service providers operating such platforms are discouraged from offering their services in Member States other than the one in which they are established. As a result, crowdfunding services have remained hitherto largely national, to the detriment of a Union-wide crowdfunding market, thus depriving businesses of access to crowdfunding services, especially in cases where those businesses operate in smaller national markets.

(7) In order to foster cross-border crowdfunding services and to facilitate the exercise of the freedom to provide and receive such services in the internal market, it is necessary to address the existing obstacles to the proper functioning of the internal market in crowdfunding services, and to ensure a high level of investor protection by laying down a regulatory framework at Union level.

(8) By addressing the obstacles to the functioning of the internal market in crowdfunding services, this Regulation aims to foster cross-border funding of businesses. Crowdfunding services in relation to lending to consumers, as defined in point (a) of Article 3 of Directive 2008/48/EC of the European Parliament and of the Council , should therefore not fall within the scope of this Regulation.

(9) To avoid regulatory arbitrage and to ensure their effective supervision, crowdfunding service providers should be prohibited from taking deposits or other repayable funds from the public, unless they are also authorised as a credit institution in accordance with Article 8 of Directive 2013/36/EU of the European Parliament and of the Council . However, Member States should ensure that national law does not require an authorisation as a credit institution or any other individual authorisation, exemption or dispensation for project owners or investors where they accept funds or grant loans for the purposes of offering or investing in crowdfunding projects.

(10) The provision of crowdfunding services aims to facilitate the funding of a project by raising capital from a large number of people who each contribute relatively small investment amounts through a publicly accessible internet-based information system. Crowdfunding services are thus open to an unrestricted pool of investors who receive investment propositions at the same time and involve the raising of funds predominantly from natural persons, including those that are not high-net worth individuals. This Regulation should apply to crowdfunding services that consist of the joint provision of reception and transmission of client orders and the placement of transferable securities or admitted instruments for crowdfunding purposes without a firm commitment basis on a public platform that provides unrestricted access to investors. The joint provision of those services is the key feature of crowdfunding services compared to certain investment services provided under Directive 2014/65/EU of the European Parliament and of the Council , even though individually those services match those covered by that Directive.

(11) In relation to lending-based crowdfunding, this Regulation should apply to crowdfunding services that consist of the facilitation of granting of loans, including services such as presenting crowdfunding offers to clients and pricing or assessing the credit risk of crowdfunding projects or project owners. The definition of crowdfunding services should accommodate different business models enabling a loan agreement between one or more investors and one or more project owners to be concluded through a crowdfunding platform. Loans included within the scope of this Regulation should be loans with unconditional obligations to repay an agreed amount of money to the investor, whereby lending-based crowdfunding platforms merely facilitate the conclusion by investors and project owner of loan agreements without the crowdfunding service provider at any moment acting as a creditor of the project owner. The facilitation of granting of loans that falls within the scope of this Regulation is to be distinguished from the activity of a credit institution, which grants credits for its own account and takes deposits or other repayable funds from the public.

(12) In order to deliver their services, crowdfunding service providers operate publicly accessible internet-based information systems, including those systems that require user registration.

(13) For investment-based crowdfunding, transferability is an important safeguard in order for investors to be able to exit their investment since it provides the possibility for them to dispose of their interest on the capital markets. This Regulation therefore covers and permits crowdfunding services related to transferable securities. Shares of certain private limited liability companies incorporated under the national law of Member States are also freely transferable on the capital markets and should therefore not be prevented from being included within the scope of this Regulation.

(14) Certain admitted instruments for crowdfunding purposes are in some Member States subject to national law governing their transferability, such as the requirement for the transfer to be authenticated by a notary. This Regulation should apply without prejudice to national law governing the transfer of such instruments.

(15) Whilst initial coin offerings have the potential to fund SMEs, innovative start-ups and scale-ups, and can accelerate technology transfer, their characteristics differ considerably from crowdfunding services regulated under this Regulation.

(16) Given the risks associated with crowdfunding investments, it is appropriate, in the interest of the effective protection of investors and of the provision of a mechanism of market discipline, to impose a threshold for a total consideration for crowdfunding offers made by a particular project owner. Accordingly, that threshold should be set at EUR 5 000 000, which is the threshold used by most Member States to exempt offers of securities to the public from the obligation to publish a prospectus in accordance with Regulation (EU) 2017/1129 of the European Parliament and of the Council .