EBA publishes final draft technical standards on individual portfolio management by crowdfunding service providers

The European Banking Authority (EBA) published today its Final Report on draft Regulatory Technical Standards (RTS) specifying the information that crowdfunding service providers offering individual portfolio management of loans shall provide to investors in relation to the method to assess credit risk, and on each individual portfolio. The draft RTS also specify the policies, procedures and organisational arrangements that crowdfunding service providers shall have in place in relation to any contingency fund they may offer to investors. These RTS are the first of two mandates assigned to EBA with a view to contributing to a sound prudential and disclosure framework for crowdfunding service providers.

When investing in a portfolio of loans offered by crowdfunding service providers, investors may face potential information asymmetries. In order to address this issue, investors should have access to all relevant information about the composition of their portfolio, including the projects where their funds are invested, as well as the quality of the loans financing such projects.

Investors are exposed not only to risks connected to the projects or the loans in which their funds are invested, but also to the way the crowdfunding service provider assesses the risk of these loans and projects and how it manages the selection of loans for the portfolio.

Against this backdrop, these draft RTS require crowdfunding service providers to show that the measurement techniques used for credit risk assessments are based on a sufficient number of elements and are appropriate to the complexity and level of the risks underlying i) the individual project; ii) the portfolio; iii) the project owner. In addition, the draft RTS set out the information that crowdfunding platforms must disclose, namely the key characteristics of each individual portfolio.

Finally, as crowdfunding service providers may offer a dedicated contingency fund to compensate investors for the losses they may incur, in case project owners do not reimburse their loans, the draft RTS specify adequate policies, procedures and governance arrangements that providers should have in place when managing, either directly or through a third-party provider, contingency funds.

Legal basis

These draft RTS have been developed according to Articles 6(7) of Regulation (EU) No 1503/2020 (European Crowdfunding Service Providers Regulation - ECSPR), which mandates the EBA to develop, in close cooperation with the European Securities and Market Authority (ESMA), draft RTS to specify:

• the elements, including the format, that are to be included in the description of the method used for the assessment of credit risk of i) individual crowdfunding projects selected for the investor’s portfolio; ii) individual portfolios; iii) the project owners selected for the investor’s portfolio as referred in Art. 6(2) of ECSPR;   
• the information that the crowdfunding service provider should provide to investors on each individual portfolio as referred in Art. 6(4) of ECSPR;
• the policies, procedures and organisational arrangements that crowdfunding service providers are to have in place as regards any contingency funds they might offer as referred to in Art. 6(5) and Art. 6(6) of ECSPR.