Commission Delegated Regulation (EU) 2024/358 of 29 September 2023 supplementing Regulation (EU) 2020/1503 of the European Parliament and of the Council with regard to regulatory technical standards specifying requirements on credit scoring of crowdfunding projects, pricing of crowdfunding offers, and risk management policies and procedures

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (1), and in particular Article 19(7) thereof,

Whereas:

(1) Article 23 of Regulation (EU) 2020/1503 requires crowdfunding service providers to provide sufficient information to investors on the quality of crowdfunding projects and project owners, in particular by providing a key investment information sheet (KIIS), which contains the information needed to make an informed investment decision. However, investors should also be adequately informed on how crowdfunding service providers calculate credit scores for crowdfunding projects and project owners to allow them to better understand and compare the risks underlying different crowdfunding loans.

(2) In recent years, the techniques of credit risk assessment and the calculation of credit risk scores, in addition to more traditional statistical techniques, have been developed under innovative approaches based on artificial intelligence and machine learning. For example, for small and medium-sized enterprises without a long credit history, innovative methods based on transactional data may prove more useful than methods based on traditional balance sheet data. Due to their complexity, the use of those techniques may increase the asymmetry of information between investors and crowdfunding service providers. Therefore, the description of the method used by crowdfunding service providers to calculate credit scores should indicate the scoring model used to support such calculation, as well as sufficient information on the financial and non-financial factors that are used as input in those scoring models and on the output provided by the scoring models.

(3) Investors may not be fully aware of the mechanism for, and the several factors involved in, the price formation for crowdfunding offers. Transparency should therefore be increased to facilitate the comparison between different loans. In particular, when crowdfunding service providers suggest the price of a crowdfunding offer, they should accurately describe the method used to calculate those prices. That description should consider those elements that are relevant both at the time and after the point when a loan is originated, in particular having regard to the fees that a crowdfunding service provider may ask from investors and project owners for the services provided to them.

(4) The price of loans facilitated on crowdfunding service provider’s platform should be fair and appropriate. It should thus be ensured that the price reflects the risk profile and the net present value of the loan, and that the crowdfunding service provider has taken into account the general market conditions.

(5) Crowdfunding service providers should carry out a reliable assessment of credit risk as minimum protection for investors that do not have sufficient information on the creditworthiness of project owners and on the sustainability of crowdfunding projects. To ensure that crowdfunding service providers assess the credit risk of crowdfunding projects and project owners in a sound and robust manner, they should consider a sufficient amount of information on those factors that affect the financial situation and the business strategy of project owners and crowdfunding projects. Furthermore, as a comprehensive assessment of credit risk has to consider also whether such risk is offset by the availability of credit protection arrangements, crowdfunding service providers should also consider information on collateral and guarantees used to mitigate credit risk.

(6) Crowdfunding service providers should have access to relevant information contained in the documentation related to credit risk assessments to allow adequate benchmarking analysis on the creditworthiness of perspective project owners and improve the models and tools used for approving projects to be financed on their platforms. Personal data included in that information should be stored for a period of no more than five years and anyway treated in accordance with Regulation (EU) 2016/679 of the European Parliament and the Council (2).

(7) The process to determine the price of a crowdfunding offer should also include an accurate valuation of crowdfunding loans. Crowdfunding service providers should therefore ensure that, during the life-cycle of the loan, such valuation is based on a sufficient number of factors that reflect the income and cost structure of the loan, as well as its riskiness.

(8) Sound governance structures enhance investor protection. To that end, crowdfunding service providers should have in place governance arrangements that are proportionate to their complexity, together with policies specifying the elements of a disclosure that ensure that the information provided to investors is accurately and sufficiently in detail representing the crowdfunding project. Moreover, a due diligence should be carried out on the crowdfunding projects and on project owners. The risk-management framework referred to in Article 4(4), point (f), of Regulation (EU) 2020/1503 should therefore identify the main roles and functions that are responsible for the credit risk assessment and for the assignment of loans to the respective risk categories. Such framework should match the complexity of the business model of the crowdfunding providers and the type of lending facilitated, and reflect the safeguards established in the Regulation (EU) 2020/1503 to manage money laundering and terrorist financing risks.

(9) This Regulation is based on the draft regulatory technical standards developed by the European Banking Authority (EBA) in close cooperation with the European Securities and Markets Authority (ESMA) and submitted to the Commission.

(10) EBA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (3).

(11) The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 of the European Parliament and of the Council (4) and delivered an opinion on 10 January 2023,

HAS ADOPTED THIS REGULATION:

CHAPTER I

DESCRIPTION OF THE METHOD USED TO CALCULATE CREDIT SCORES FOR CROWDFUNDING PROJECTS AND PRICES OF CROWDFUNDING OFFERS

Article 1

Format of the description of the method to calculate credit scores for crowdfunding projects and prices of crowdfunding offers

Crowdfunding service providers that apply credit scores to crowdfunding projects or suggest the pricing of crowdfunding offers shall ensure that the description of the methods used to calculate those credit scores or prices is accurate, reliable and regularly updated, and complies with all of the following:

(a) the description is clearly distinguishable from marketing communications;

(b) the description is presented in a way that is easy to read and expressed in a manner that facilitates its understanding.

Article 2

Elements to be included in the description of the method used to calculate credit scores for crowdfunding projects

(b) whether there are appropriate governance arrangements in place for the design and use of the model;

(c) a description of the framework applied to ensure that the quality of the model output is regularly assessed and monitored;

(d) whether a model was used that was developed by third-party providers.

(d) the weights assigned to the financial and non-financial factors referred to in points (b) and (c);

(e) the relevant metrics that are taken into account in relation to the financial and non-financial factors referred to in points (b) and (c);

(f) an explanation of how risks stemming from money laundering and terrorist financing activities are taken into account when assigning credit scores;

(h) a description of how often the credit scores and the corresponding ratings of the crowdfunding project are updated during the lifetime of the loan financing the project;

(i) an indication of whether credit scores obtained using automated models can be corrected manually, and the circumstances in which such manual corrections are made;

Article 3

Elements to be included in the description of the method used to calculate prices of crowdfunding offers

(a) the principal amount of the loan;

(b) the maturity of the loan;

(c) the time structure of repayment instalments;

(d) the results of the scoring models.

(a) the risk-free interest rate used;

(b) the risk category of the project owner assigned in accordance with Article 19;

(c) the availability of collateral or guarantees;

(d) any operating and administrative costs, and fees levied by the crowdfunding service provider for services provided in connection with the loan;

(e) where relevant, any other risk associated with the loan.

(a) fees for loan administration and monitoring;

(b) fees in relation to re-evaluation of collateral;

(c) fees for changes to loan agreement terms or restructuring conditions, including changes following default by the project owner;

(d) fees for the sale of the loan by the investor;

(e) fees for the early repayment of the loan;

(f) fees for contingency funds as referred to in Article 6(5) and (6) of Regulation (EU) 2020/1503.

CHAPTER II

CREDIT RISK ASSESSMENT AND LOAN VALUATION

Article 4

Approaches and information for credit risk assessment and loan valuation

For the purposes of this chapter, crowdfunding service providers shall:

(a) adopt methods and approaches to credit risk assessment and loan valuation that are proportionate to the size, type and maturity of the loan and to the characteristics of the project owner and of the crowdfunding project;

(b) use accurate, reliable and up-to-date information and data.

Article 5

General requirements for credit risk assessments of crowdfunding projects or project owners

Article 6

Information to be considered in the credit risk assessments of crowdfunding projects or project owners

When assessing the credit risk of crowdfunding projects or project owners, crowdfunding service providers shall consider all of the following information:

(a) the description of the crowdfunding project;

(b) the purpose of the loan;

(c) the ownership structure of the project owner;

(d) the business plan underlying the crowdfunding project;

(e) the availability of collateral or guarantees.

Article 7

Factors to be considered in assessing the financial situation of the project owner or of the crowdfunding project

(a) the income and cash flow generated by the crowdfunding project over the past 2 years, where available;

(b) the expected income and cash flows of the crowdfunding project in different scenarios;

(c) the current and projected financial situation of the project owner, including any other existing loans and liabilities;

(d) the availability of collateral or other guarantees.

(a) the amount of those other loans or liabilities;

(b) the currency in which those other loans or liabilities are issued;

(c) the maturity of those other loans or liabilities;

(d) the repayment schedule for those other loans or liabilities;

(e) the interest rate or any other compensation provided for in those other loan or liabilities contracts.

Article 8

Information to be considered in assessing of the business model and strategy of crowdfunding projects or project owners

When assessing the credit risk of crowdfunding projects or project owners, crowdfunding service providers shall consider the following information in relation to the crowdfunding project’s business model and business strategy:

(a) the project owner’s knowledge of the business sector relating to the crowdfunding project and experience in similar projects;

(b) the feasibility and sustainability of the business plan linked to the crowdfunding project;

(c) an analysis of the strengths and weaknesses of the crowdfunding project;

(d) the degree of competition in the business sector in which the crowdfunding project is taking place;

(e) the type of customers and their geographical location.

Article 9

Information on credit protection arrangements

(a) the accuracy of the valuation of the collateral and guarantees;

(b) the effectiveness and enforceability of the collateral and guarantees.

Article 10

Information on funded credit protection

(a) information about the maturity of the collateral;

(b) for financial collaterals, the latest available price for the collateral and the average price over the previous 12 months on a liquid and traded market;

(c) for physical collaterals, the latest available market value;

(d) information about the existence of a market to liquidate the collateral readily;

(e) a measure of the volatility of the value of the collateral.

(a) the assumptions that have been used to assess the value of the collateral;