In Germany, BaFin is currently issuing the first licenses under Regulation (EU) 2020/1503 on European Crowdfunding Service Providers (ECSP Regulation). Via a crowdfunding service, issuers can issue securities with an issue value of no more than EUR 5 million over a period of twelve months in accordance with the ECSP Regulation when using a publicly accessible, internet-based electronic information system operated or managed by a regulated crowdfunding service provider (crowdfunding platform). Currently, there are various internet platform operators that act as tied agents to broker security tokens or crypto securities under the liability umbrella of a securities institution licensed for investment brokerage or contract brokerage. Most of the security tokens or crypto securities offered in this way are offered by means of a securities information sheet or basic information sheet, provided that the issue volume does not exceed the amount of EUR 8 million in individual cases. Now that the ECSP Regulation applies throughout the EU, the question arises as to whether internet platform operators acting as tied agents may continue to offer security tokens or crypto securities with issue volumes of up to EUR 5 million or whether a BaFin license as a crowdfunding service provider will be mandatory.
Public Offering of Security Tokens and Crypto Securities up to 5 million Euros in Case of Crowdfunding Only with ECSP License
In its scope of application, the ECSP Regulation takes precedence over the national regulations of the German Banking Act (KWG) and the German Investment Firm Act (WpIG). As a consequence, the German model of tied agents cannot apply to issues of security tokens or crypto securities within the scope of the ECSP Regulation. Only in the case of an issuance that leads to a total volume of more than 5 million euros calculated over a period of twelve months, the regulations of the KWG or WpIG apply. Only then is it possible for companies to broker the corresponding financial products as tied agents. This understanding of the ECSP Regulation with regard to the relationship to national regulations has already been confirmed by ESMA in its Q&A. However, according to EMSA, it is possible to use tied agents to promote the services of the swarm finance service provider. Such activity would then be subject to national law.
Tied Agents May Need to Adapt Their Business Model
Tied agents currently brokering security tokens or crypto securities via an internet platform face the risk that they will have to stop brokering small-volume offers and will not be able to offer them without an ECSP license in the future. In order to continue to be able to broker small-volume offerings in the future, tied agents operating via internet platforms must first apply for and obtain an ECSP license from BaFin. However, since the scope of the ECSP Regulation only applies to public offerings of up to EUR 5 million, tied agents operating via Internet platforms will still be able to support issues of more than EUR 5 million without an ECSP license from BaFin. Should the same issuer conduct another small-volume issue within twelve months, the brokerage of such an issue under the liability umbrella should also be possible, as the offer threshold of the ECSP Regulation is always based on a period of twelve months.
Attorney Dr. Konrad Uhink
The responsible attorney in our law firm for advice on crowdfunding, the ECSP Regulation and capital markets issuances in general is Dr. Konrad Uhink.