Danish FSA to approve crowdfunding service providers

Requirements for authorisation as a crowdfunding service provider under the Crowdfunding Regulation will apply from 10 November 2021.

The Crowdfunding Regulation aims to facilitate the financing of a project by raising capital from a large number of individuals, each contributing relatively small amounts of investment, through a crowdfunding platform. A crowdfunding platform is a publicly accessible internet-based information system operated or managed by a crowdfunding service provider.

Loan-based crowdfunding and investment-based crowdfunding

Crowdfunding platforms can, as a neutral intermediary, help bringing both investors and project owners in need of financing together. The financing may take the form of (i) the provision of loans or (ii) the placement of securities or instruments without a firm commitment and the reception and transmission of orders for those securities and instruments. These two forms of crowdfunding are referred to as loan-based crowdfunding and investment-based crowdfunding respectively.

Authorisation Requirement

The new rules require authorisation as a crowdfunding service provider if carrying out investment-based or loan-based crowdfunding and allow for cross-border activity as a crowdfunding service provider. The rules will apply from 10 November 2021.

Pursuant to the Financial Business Act (Lov om Finansiel Virksomhed), the Danish FSA is the competent authority for the supervision of the Crowdfunding Regulation, including for granting authorisation as a crowdfunding service provider under the Crowdfunding Regulation.

Application Form

The application for the authorisation as a crowdfunding service provider shall be sent to the Danish FSA, for the attention of the Office for Investor Protection. The requirements for the application are set out in Article 12 of the Crowdfunding Regulation. This includes:

• Any legal person intending to provide crowdfunding services must apply to the competent authority of the Member State where it is established for authorisation as a crowdfunding service provider.

• The application must include:

  • name (including the legal name and any other trading name to be used), internet address of the website, and physical address;

  • legal form;

  • articles of association;

  • programme of operations, including types of crowdfunding services and the intended crowdfunding platform, and where and how crowdfunding offers are to be marketed;

  • description of the governance arrangements and internal control and compliance mechanisms, including risk-management and accounting procedures;

  • description of the systems, resources and procedures for control and safeguarding of data processing systems;

  • description of the operational risks;

  • description of the prudential safeguards (cf. Article 11);

  • proof that the prospective crowdfunding service provider meets the prudential safeguards (cf. Article 11);

  • description of the business continuity plan, including the continuity of the provision of critical services related to existing investments;

  • identity of the natural persons responsible for the management;

  • proof that the natural persons meet the fit and proper test;

  • description of the internal conflicts of interest rules;

  • description of any outsourcing arrangements;

  • description of the procedures for client complaints;

  • confirmation if the provider intends to provide payment services itself or through a third party;

  • description of the procedures to verify the completeness of the key investment information sheet;

  • description of the procedures in relation to investment limits for non-sophisticated investors.

• Proof that the management is of good repute and possess sufficient knowledge, skills and experience to manage the prospective crowdfunding service provider requires the following:

  • no criminal record in respect of infringements of national rules in the fields of commercial law, insolvency law, financial services law, anti-money laundering law, fraud law or professional liability obligations for all the natural persons involved in the management of the prospective crowdfunding service provider and for shareholders who hold 20 % or more of the share capital or voting rights;

  • proof that the natural persons involved in the management of the prospective crowdfunding service provider collectively possess sufficient knowledge, skills and experience to manage the prospective crowdfunding service provider and that they are required to commit sufficient time to the performance of their duties.

• The FSA shall, within 25 working days of receipt of the application, assess whether that application is complete. Where the application is not complete, the competent authority shall set a deadline by which the prospective crowdfunding service provider is to provide the missing information.

• If the application remains incomplete, the FSA may refuse to review the application and return the submitted documents.

• If the application is complete, the FSA must immediately notify the prospective crowdfunding service provider thereof.

• Before adopting a decision granting or denying authorisation as a crowdfunding service provider, the FSA must consult the FSA of another EU Member State if:

  • the prospective crowdfunding service provider is a subsidiary of a crowdfunding service provider authorised in another EU Member State;

  • the prospective crowdfunding service provider is a subsidiary of the parent undertaking of a crowdfunding service provider authorised in another EU Member State; or

  • the prospective crowdfunding service provider is controlled by the same natural or legal persons who control a crowdfunding service provider authorised in another EU Member State.

• The FSA must, within three months from the date of receipt of a complete application, assess whether the prospective crowdfunding service provider complies with the requirements set out in the Crowdfunding Regulation and issue a fully reasoned decision granting or refusing authorisation. That assessment shall take into account the nature, scale and complexity of the intended crowdfunding services. The FSA may refuse authorisation if there are objective and demonstrable grounds for believing that the management of the prospective crowdfunding service provider could pose a threat to its effective, sound and prudent management and business continuity, and to the adequate consideration of the interest of its clients and the integrity of the market.

• The FSA must inform ESMA of all authorisations granted. ESMA must add information on the successful applications to the register of authorised crowdfunding service providers. It may request further information in order to ensure that authorisations granted by the FSA are granted consistently.

• The FSA shall notify the prospective crowdfunding service provider of its decision within three working days of the date of that decision.

• A crowdfunding service provider authorised in accordance must, at all times, meet the conditions for its authorisation.

• EU Member States shall not require crowdfunding service providers that provide crowdfunding services on a cross-border basis to have a physical presence in the territory of an EU Member State other than the EU Member State in which those crowdfunding service providers are authorised.

• Crowdfunding service providers authorised under the Crowdfunding Regulation may also engage in activities other than those covered by the authorisation in accordance with the relevant applicable EU or national law.

• If a provider, already authorised under EU or national law applicable to crowdfunding services prior to the entry into force of the Crowdfunding Regulation, applies for authorisation, the FSA must not require information or documentation which is already submitted if it remains up-to-date and is accessible.

Danish FSA register of companies and ESMA register of crowdfunding service providers

Crowdfunding service providers authorised by the Danish FSA will be listed in the Danish FSA's register of companies on the Danish FSA's website. Similarly, foreign crowdfunding service providers conducting cross-border activities in Denmark will be listed in the Danish FSA's business register. A register of all crowdfunding service providers in the Union authorised under the Crowdfunding Regulation is publicly available on ESMA's website.