5 October 2022
The ECSP Regulation of 20 October 2020 has hit hard by deploying a set of rules and obligations towards platforms that wish to launch or grow their participatory finance business on European Union (EU) soil. They must obtain the unique status of participatory finance service provider – pan-European ECSP authorisation – if they want to carry out their activity in an EU Member State. In addition to the new rules imposed, such as the single fundraising threshold of €5 million per project per year or the categorisation of investors (informed or not), the ECSP regulation now requires platforms to establish a business continuity plan. And it is on this point that run-off management makes sense! Explanations.
The ECSP Regulation applicable since November 2021 requires platforms to implement a business continuity plan. The European legislators, therefore, do not use the term run-off management, which is one of the possible solutions for ensuring the continuity of the platform’s activity.
The business continuity plan, specified in point (25) of the Regulation, must enable the platform to deal with the difficulties resulting from its failure. It must include “provisions for the handling of critical functions“, which, depending on the business model of the equity crowdfunding platform, “could include provisions to ensure the continuity of the management of outstanding loans, the provision of information to customers and the transfer of asset custody arrangements.”
The legislator then adds in Article 12 that the continuity plan must establish measures and procedures that will ensure the continuation of “essential services related to existing investments and the proper management of agreements” between the platform and its customers, taking into account “the nature, scale and complexity of the participatory finance services”.
In concrete terms, the run-off management corresponds to the means and procedures to guarantee the continuity of financial operations in crowdfunding platforms operating in the form of loans and bonds. The run-off management offer allows investors to recover the sums promised even if the platform ceases to operate, rather like an insurance policy.
The web agency Capsens, which works with crowdfunding platforms as a payment service provider agent, has taken up the subject to develop a run-off management offer for its clients. Operating in 3 phases, Capsens takes over in case the platform ceases its activity and redistributes the funds to the investors until the end of their commitment.
Before committing to a client, Capsens audits the current contracts, the CGUs, the contract models, the balance sheets, the profit and loss accounts and the analysis of the financial statistics. They analyse the financial situation of the platform and avoid contracting with a company on the verge of bankruptcy.
If all indications are that the platform is doing well, the agency formalises the relationship and carries out-migration and loan contract control tests, among other things. It sets up the KYBs and proceeds to format the client’s data into its tool, then opens access to its runoff platform. Every 6 months, Capsens sends a reminder notification and asks for the sending of CSV/Excel files reminding the list of due dates, lenders, and borrowers before carrying out direct tests. Finally, it delivers a certificate attesting to the conformity of the platform to benefit from the run-off management offer, which it couples to an annual audit of the contracts.
Capsens requires it to warn the lenders and borrowers at least 45 days before its disconnection when the platform’s activity is threatened, and the cessation is envisaged. The repayments are thus ensured on the runoff platform specially created by Capsens. Let’s take the example of a lender who had committed himself with a platform, a customer of Capsens, on a loan contract with a return on investment over 24 months. In case of activity cessation of the platform, Capsens will take over from the lender to ensure the obligation to reimburse the loaned funds with ROI on the whole validated period (24 months).
As a payment institution approved by the ACPR, Lemonway, in collaboration with Capsens agency, guides you throughout your project of creating a participative financing platform. Contact us for more information!
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