Central Bank announces new crowdfunding regulatory regime

• New EU Regulation establishes a regulatory regime for crowdfunding service providers
• Crowdfunding service providers must be authorised and subject to operational requirements and investor protection measures
• Crowdfunding service providers will be required to include appropriate warnings in their advertising to prospective investors

The Central Bank of Ireland has today (13 January 2022) announced a new regulatory regime for Crowdfunding Service Providers under EU Regulation. The Central Bank of Ireland has been designated the competent authority for crowdfunding regulation in Ireland.

While crowdfunding brings new funding possibilities for businesses and new opportunities for investors, it is important that investors are appropriately protected and well informed as to the potential risks. A number of provisions of the Consumer Protection Code 2012 will now apply to advertising by crowdfunding service providers in Ireland. Amongst other requirements, any advertisement must be fair and clear and must not mislead or seek to influence consumers unduly in their investment decisions.

Crowdfunding service providers must display a prominent warning message on all advertisements that investment in crowdfunding projects entails risks, including the risk of partial or entire loss of the money invested; and that any investment is not covered by a deposit guarantee scheme or by an investor compensation scheme.

There are two main types of crowdfunding that are covered by this Crowdfunding Regulation - investment-based crowdfunding and peer-to-peer/loan based crowdfunding. The new framework will require in-scope crowdfunding service providers to be authorised and they will be subject to operational and prudential requirements as well as investor protection measures.

Gerry Cross, Director of Financial Regulation - Policy and Risk said, “Crowdfunding provides a form of alternative finance for start-ups and SMEs, typically relying on small investments. Trust, confidence, and fair dealing are essential for any financial market or product. It is therefore vital that investors are made aware of the risks of any such investment.

The Central Bank is now applying its advertising rules to crowdfunding service providers. This will ensure that Irish consumers receive the same protections in relation to advertising by crowdfunding service providers that we require of other financial service providers.”