The new European Crowdfunding Service Provider Regulation (ECSPR) is “more robust” than UK-based crowdfunding and peer-to-peer lending regulations, according to one compliance expert.

The ECSPR’s detailed requirements around borrower due diligence go further than similar rules set by the UK’s Financial Conduct Authority (FCA), believes Tara Cantwell, legal and compliance manager at Lendermarket.

“The UK and EU P2P regulations are very similar when it comes to consumer protection,” said Cantwell.

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“Both the ECSPR’s and FCA’s regulations are heavily focused on investor protection. Both require P2P platforms to assess and categorise their investors based on wealth, knowledge and experience in investing. Both also require strong disclaimers with warning labels for capital at risk and losses that may be suffered.”

However, Cantwell added that she would consider the ECSPR to be “more robust” due to the enhanced scope of the EU rules.

Unlike UK regulations, ECSPR requires a certain amount of due diligence to be done on any new loan originator and borrower, including an assessment of criminal records and infractions relating to commercial, insolvency, fraud and money laundering issues.

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The ECSPR also requires a key investment information sheet (KIIS) to be provided for each individual project. Each KIIS must contain information relating to the underlying borrowing or capital raising, risk factors, investor’s rights, complaint’s handling, detailed information about the project owner and the project and the portfolio management of the loans.

“The ECSPR also recognises further business models that are relevant to the industry,” adds Cantwell. “For example, the possibility to organise secondary trading in securities on a crowdfunding platform.”

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The ECSPR rules were introduced in November 2021, and all nationally licensed crowdfunding and P2P lending platforms must attain an ECSPR licence by November 2023. This licence allows them to operate across the entire trading bloc with ease.

The regulations aim to standardise the way that P2P and crowdfunding platforms across the EU, and promote transparency for both investors and borrowers.