ECSPR/AMLR - Will crowdfunding platforms be subject to money laundering obligations?

In our ECSPR series and our ECSPR guide, we have already reported on the money laundering obligations of crowdfunding service providers under the European Crowdfunding Regulation (ECSPR). So far, these are not directly obliged under money laundering law, but other obligations in the area of money laundering apply.

A new Anti-Money Laundering Regulation (AMLR) is currently being discussed at the European level, which is to replace parts of the local Money Laundering Acts and the Anti-Money Laundering Directives (AMLD). In this context, the group of obliged entities is also being discussed anew.

Commission proposal

The European Commission had already published a legislative proposal for a money laundering package in 2021. In this proposal for the Anti-Money Laundering Regulation, the inclusion of crowdfunding platforms was provided for, excluding those holding an authorisation under the ECSPR.

The Commission considered the inclusion in principle of crowdfunding platforms in the circle of obliged entities as justified with view to their vulnerability to money laundering and terrorist financing risks. However, there should be an exclusion for crowdfunding service providers that have an authorisation under the ECSPR. Other service providers were currently either not regulated by EU member states or subject to different regulatory approaches depending on the member state. The Commission wanted to create uniform treatment here so that no uncontrolled risks arise. However, the AMLR proposal does not contain a definition for crowdfunding service providers outside of the scope of ECSPR.

The Commission justified the exclusion for crowdfunding platforms licensed under the ECSPR by stating that the ECSPR provides adequate and coherent safeguards for dealing with potential money laundering and terrorist financing risks. One element of this, for example, is that the management of funds and payments on the platforms must be carried out by a licensed payment service provider if the crowdfunding service provider does not have a PSD2 authorisation itself. The Commission sees another component of the implemented protective measures of the ECSPR in the verification of the reliability of the crowdfunding service provider's management in the authorisation procedure. The obligation to carefully check the project owners also minimises the risk of money laundering. The ECSPR already provides for the Commission to submit a report before 10 November 2023 in which it assesses the extent to which it is necessary and proportionate to include crowdfunding service providers with ECSPR authorisation in the group of obliged entities.

Parliament's proposed amendments

The European Parliament considered the draft AMLR in April 2023 and proposed amendments. These amendments also affect the crowdfunding sector. The proposed amendment sees the current non-obligation of ECSPR crowdfunding service providers as a gap and weakness in the fight against money laundering. Therefore, in principle all crowdfunding service providers shall be subject to anti-money laundering obligations, regardless of their authorisation under the ECSPR.

In contrast to the Commission's proposal, the Parliament's amendments nevertheless aim to introduce exemptions for certain crowdfunding service providers. However, these concern precisely those crowdfunding service providers that do not fall under the ECSPR. Member States should be free to exempt crowdfunding service providers outside the ECSPR from the AMLR obligations if an individual risk assessment demonstrably shows a low risk due to the type and, if applicable, the scope of the crowdfunding services. Crowdfunding service providers to be exempted shall have to fulfil the following requirements cumulatively:

1. They should only be allowed to promote projects that pursue a non-profit purpose. Platforms with the intention of making a profit should not be able to benefit from the exception. Insofar as profits are generated, these should be invested for the non-profit purposes. Profits may not be distributed among members, founders or other private parties.
2. They must introduce and implement minimum due diligence requirements in relation to project owner. This audit shall comply with the requirements of the ECSPR and cover all natural persons involved in the management of the project owner.
3. All natural persons involved in the management of the crowdfunding service provider shall meet the professional qualification requirements under the ECSPR.
4. They shall establish and maintain arrangements to ensure that promoters accept funding of crowdfunding projects or other payments only through an authorised payment service provider.
5. They shall be established in the Union.

EU Member States, in cooperation with the newly formed European Anti-Money Laundering Authority, must monitor according to a risk-based approach and ensure that the exemptions are not abused.

Lookout

The amendments proposed by the Parliament to the draft AMLR have a legal impact on crowdfunding service providers. In Germany, however, most crowdfunding service providers were already subject to money laundering obligations (e.g. as investment firms) before the ECSPR. In order to meet the requirements for the organisation of payments under the ECSPR, some crowdfunding service providers are also appointed as PSD2 agents for payment institutions. In this case, too, they are already subject to the obligations under money laundering law. Therefore, the obligations are not unusual.

It is surprising, however, that contrary to the requirements of the ECSPR, the report of the Commission is not awaited, which is expected before 10 November 2023. The final version of the ALMR must therefore be awaited.