The Regulation brings innovations to national regulation and they, as known, did not bypass the conflicts of interest policy. The Law on Crowdfunding of the Republic of Lithuania, which was in force from 2016, so far did not establish such concrete requirements or restrictions for the operator of a crowdfunding platform to become involved in the activities organized through the platform. Even though the activities of the operators on their own platform were also limited during the period of validity of national law, it has been made only informally, by creating a certain market standard, through inspections of the supervisory authority, thus the new Regulation draws a red line here.

In this context, important highlight is that a general obligation on operators of crowdfunding platforms to avoid conflicts of interest and establish measures in that regard, also imposed by the Regulation, is not a new thing, compared to national regulation, but the specific restrictions of Regulation arises from the objective to ensure effective governance in a system based on the idea that crowdfunding platform operators should act as a neutral intermediaries between clients in their platform and this importance of neutrality have not been disclosed in national regulation.

–  In particular, the Regulation explicitly prohibits crowdfunding platform operator from participating financially in the crowdfunding offers of its own platform.

–  What is more, under the Regulation, the operator of a crowdfunding platform shall not publish projects owned by:

• shareholders of the crowdfunding platform operator, holding 20% or more of the share capital or voting rights;
• managers or employees of the crowdfunding platform operator;
• other natural or legal persons directly or indirectly linked to those shareholders, managers or employees by control.

– Otherwise, the Regulation provides that the operator of a crowdfunding platform may agree for shareholders, managers, employees or other linked persons mentioned hereabove to be investors in crowdfunding projects offered on its crowdfunding platform, provided that both of the following conditions are met:

• the crowdfunding platform operator will fully disclose on its website the fact that such persons may be investors (including information on the specific projects in which the investment by these persons has been made earlier), and
• ensure that investments are made under the same conditions as other investors, without preferential treatment or privileged access to information.

– Operator of a crowdfunding platform shall disclose to its clients the general nature and sources of conflicts of interest and the steps taken to mitigate them.

It should be noted that these changes may be perceived by market participants as contradictory. Such regulation will not be favorable for those market participants who so far have been actively involved as project owners in the activities of the platform they administer. On the other hand, safeguards against conflicts of interest are focused not on restricting the activities of crowdfunding platform operators, but on ensuring that the interests of the clients are properly and proportionately safeguarded. It seems that these and other new developments in European crowdfunding regulation will continue to evolve, stimulate debate and will help to create model, favorable to practice.

As the field of crowdfunding is not completely new to Lithuanian law and the national supervisory authority is already sufficiently familiar with the specifics of the crowdfunding activity, the RESPONSE team hopes for a smooth transition from acting under national law to acting under the Regulation.

If you have any questions regarding the Regulation or if you would like to be authorized in accordance with the Regulation requirements, please do not hesitate to contact us.

Miroslava Kryštul