The EBA hopes to bring transparency to crowdfunding

The European Banking Authority (EBA) finalises new standards draft, that would require crowdfunding campaigns to become more transparent.

The Regulatory Technical Standards are aimed at crowdfunding service providers offering individual portfolio management of loans and specifies the information that should be given to investors to assess credit risk.

It also outlines he policies, procedures and organisational arrangements that crowdfunding service providers shall have in place in relation to any contingency fund they offer to investors.

As part of these definitions, the draft states crowdfunding service providers should provide investors with relevant information on the composition of their portfolio, including the projects where their funds are invested, as well as the quality of the loans financing such projects.

The regulator states investors are not just at risk from the project their loan is attached to, but also the crowdfunding service provider’s risk assessment of the loans and projects, and how it selects loans for a portfolio.

In response to this, the draft requires crowdfunding service providers to show the measurement techniques used for credit risk assessments are based on enough elements and are appropriate to the complexity and level of risk underlying the project, portfolio and project owner.

Finally, the regulator states service providers must provide a dedicated contingency fund to compensate investors for the losses they might incur if the project owner fails their repayments.

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