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.
Elements to be included in the description of the method used to calculate credit scores for crowdfunding projects
1. The description of the method used to calculate crowdfunding projects’ credit scores shall contain all of the following information:
(a)
which of the following scoring models has been used:
(i)
a statistical model;
(ii)
a judgement-based model, where statistical techniques are integrated with discretionary elements of decision-making;
(iii)
an automated model;
(iv)
another model;
(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.
2. In addition to the information referred to in paragraph 1, the description of the method used to calculate crowdfunding projects’ credit scores shall contain all of the following information:
(a)
information on the source of any data used to feed scoring models, and indicating, in particular, whether the information is:
(i)
received from the project owner;
(ii)
obtained from external credit registers;
(iii)
obtained from publicly available sources;
(iv)
obtained from any other sources;
(b)
an explanation of how the method considers the following financial factors relating to the project owner and to the crowdfunding project and uses them as input in the scoring model:
(i)
profitability of the crowdfunding project;
(ii)
cash flow generated by the crowdfunding project;
(iii)
leverage, level of indebtedness and solvency of the project owner;
(iv)
credit history of the project owner;
(v)
availability of collateral or guarantees;
(c)
an explanation of how the method considers the following non-financial factors relating to the project owner and uses them as input in the scoring model:
(i)
macroeconomic conditions in the jurisdiction where the project will take place;
(ii)
degree of competition in the industry where the project will be developed;
(iii)
the project owner’s knowledge and experience of the specific sector in which it does business;
(iv)
the project owner’s reputation;
(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;
(g)
a description of the output of the scoring model, including a table indicating the credit score steps, indicating for each step:
(i)
the credit rating;
(ii)
the probability of default;
(iii)
a qualitative interpretation of the credit score step;
(iv)
the acceptance or rejection of the funding of the project by the crowdfunding service provider;
(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;
(j)
an indication of how the output of the method is considered in the determination of:
(i)
the maximum loan amount offered to a prospective project owner;
(ii)
the maximum duration of the loan offered to a prospective project owner.
3. Crowdfunding service providers shall inform investors when a change in the method used to determine the credit scores leads to material changes in the results of that method.
4. For the purposes of paragraph 2, point (a)(i), where the information referred to in that point is based on non-audited accounts, crowdfunding service providers shall disclose to investors sufficient information on the reliability of that information.
Elements to be included in the description of the method used to calculate prices of crowdfunding offers
1. The description of the method used to calculate the price for crowdfunding offers shall explain how all of the following elements of the loan are considered in the pricing strategy:
(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.
2. The description of the method referred to in paragraph 1 shall indicate how all of the following elements are considered at the point of loan origination:
(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.
3. In addition to the elements referred to in paragraphs 1 and 2, the description of the method referred to in paragraph 1 shall also indicate how all of the following elements are taken into account after the point of loan origination:
(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.
