Portugal: Addressing crowdfunding AML risks
Crowdfunding and peer-to-peer lending have been on the EU Commission's radar for a while. Until recently, the position was 'no-action required'. However, the growing relevance of the market led the Commission to issue a proposal for the regulation of European crowdfunding service providers for business (the Regulation) on March 8 2018. This regulation focuses on crowdfunding for the funding of business (hence, excluding crowdfunding for social projects).
The Regulation intends to establish a European label for investment and lending-based crowdfunding platforms. Recognising the exposure of crowdfunding platforms to terrorism financing and money laundering risks, the Regulation provides a few safeguards to minimise risk. On that basis, inter alia, it determines that financing transactions should be made via authorised payment service providers. However, the Regulation does not go as far as to include crowdfunding platforms under the existing anti-money laundering (AML) regulatory framework.
Portugal took the lead and went a step further. The Portuguese AML Law (Law No 83/2017 of August 18) determines that crowdfunding service providers are entities equivalent to obliged entities. Consequently, crowdfunding service providers are subject to a simplified regime, and are required to implement identification procedures for all projects, persons or entities providing funding to such projects without any type of triggering threshold, which means that such duties apply as from €1 (around $1.20). Although the idea was good in theory, execution was rather poor.
When compared with the general regime, it may be still too demanding for certain crowdfunding transactions. For instance, under the general regime, general occasional transactions under €15,000 or which imply transfers of funds below €1,000 are exempt from identification duties.
This means that while in occasional business transactions the identification duty is only triggered in transfers of funds above €1,000, in cases of crowdfunding the identification duty is triggered at €1. This may be particularly demanding for platforms dedicated to small investments or social/charity crowdfunding.
The Regulation states that 'under the principle of proportionality, the content and form of EU action should not exceed what is necessary'. Proportionality does not seem to have been the keyword in Portugal and the costs may be too high for the development of a rather young business.
So far, in accordance with EU Commission report of December 2017, 11 EU member states took the lead to regulate crowdfunding. However, the above is an example of the importance of a coordinated action by the EU in regulating crowdfunding services. That would avoid regulatory arbitrage in the EU and any unnecessary obstacles to the development of a market which can constitute a valid alternative to fund economy and social projects and might as well help boost the growth of a capital markets union.
Márcio Carreira Nobre
Frederico Félix Alves