OPERATORS OF CROWDFUNDING PLATFORMS

Following the entry into force of the SFI in November 2016, the first SFPOs started to be established in Lithuania. The SFI gave the Bank of Lithuania the right to license and supervise these platforms. The SFI created a clear legal environment for the provision of crowdfunding services. It should be noted that from 10 November 2023. The SFI will expire on 20.11.2020 and the SFPOs will be governed solely by the SFR.

In accordance with the SFI, the Bank of Lithuania:

1) authorises companies to provide SFPO services;

2) monitor and analyse their performance;

3) carrying out planned, targeted and thematic inspections;

4) deal with complaints from their customers;

5) apply the SFPO's impact measures, where appropriate

These regulatory and supervisory measures are designed to support investment through crowdfunding Institute, to mitigate risks

Key concepts in the SFI

Crowdfunding is a type of financing where a project that has been made public on a dedicated platform is funded by financiers unrelated to the project or where the financiers buy the creditor's claims for sale through the SFP

SFP - the information system managed by the SFO for crowdfunding

SFPO - the legal entity that manages the SFP. An investment service provider established in other Member States may not have the status of a legal person, provided that the investment service provider licence authorises the provision of investment services

A crowdfunding transaction ("transaction") is a transaction between a financier and a project owner, whereby the financier provides or undertakes to provide the project owner with crowdfunding funds in the form of a loan or other monetary instrument or by acquiring financial instruments issued by the project owner, and the project owner issues the financial instruments and/or undertakes to reimburse the financier for the funds received

A project is a project designed to meet business, professional, scientific, research and other nonconsumption needs and published in the SFP, for which the project owner seeks to raise crowdfunding funds.

Key operational requirements for SFPOs and SFPs

The SFPO has a duty to act honestly, diligently, fairly and professionally in the best interests of and on terms that are in the best interests of the funder and the project owner. It must also have and use sound tools and procedures necessary for the operation of the SFPO

Other requirements:

1) The SFPO must assess whether a particular type of financing transaction is acceptable to the financier;

2) The SFPO must approve the information document, which must contain basic information for investors;

3) An SFPO included in the list of Public Crowdfunding Platform Operators must have a permanent establishment

In the Republic of Lithuania

In summary, the SFI is the main piece of legislation regulating the activities of SFPOs, it sets out the conditions and requirements for SFPOs' activities and the crowdfunding regime in Lithuania, the scope of mandatory disclosures, the procedure for inclusion in the list of operators of public crowdfunding platforms and for exclusion from the list, and the procedure for the supervision of SFPOs. Crowdfunding is designed to raise funds for business projects in the form of loans or securities. For each business project to be financed through the SFPO, a project plan must be prepared The funds raised cannot be used for personal consumption It should be stressed that crowdfunding does not include activities for charitable and/or aid purposes

In addition, the activities of the SFPO are also regulated by Bank of Lithuania Resolutions

Risks of investing on unregulated platforms

Investing in unregulated SFAs exposes investors to the following additional and significant risks:

1 Different rules for SFPOs In the presence of different rules, some SFPOs may fail to assess important characteristics of the project owners (creditworthiness or reliability), and may give investors the opportunity to invest without first informing them of the potential risks The absence of rules allows for the emergence of different models of SFPOs and different operational practices, which may not necessarily be in the best interests of investors.

2 Lack of supervision Investors are exposed to the risk that SFPOs are not supervised Such activities may not be focused on representing the investor's interests, but rather on financing as many business loans or entities as possible Lack of supervision means that the investor's interests are not protected by the supervisory authority

3 Complex complaints and dispute resolution process Investing on unregulated platforms loses the possibility to seek out-of-court dispute resolution from supervisory authorities When complaining to an unregulated SFPO, the resolution of the complaint can be long and complex and in some cases only possible through the courts.

European regulation of crowdfunding

The Regulation (EU) 2020/1503 on crowdfunding providers (the "Regulation") entered into force on 10 November 2021 and establishes a common legal framework for crowdfunding across the EU Under the Regulation, crowdfunding service providers are licensed entities whose main purpose is to act as intermediaries between project owners and financiers. The Regulation limits the scope of crowdfunding to business needs and therefore excludes consumer loans, charity or other financing without financial remuneration As crowdfunding is aimed at medium and small businesses, the Regulation limits the size of a project (or a project per owner per year), i.e. under the Regulation, this size cannot exceed EUR 5 million. It should be noted that the principles and substantive requirements for crowdfunding providers set out in the Regulation are very similar to those set out in the SFIs, with the exception of a few major innovations, i e The Regulation allows for individual loan portfolio management (auto-lending) and a cooling-off period to protect the rights of funders, prohibits crowdfunding service providers or their affiliates from publishing projects on the platforms they administer, sets qualification and experience requirements for the managers of the crowdfunding service provider, introduces new categories of funders (experienced and inexperienced funders) etc.