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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.
General requirements for credit risk assessments of crowdfunding projects or project owners
1. When assessing the credit risk of crowdfunding projects or project owners, crowdfunding service providers shall assess the project owner’s current and future ability to meet the financial obligations set out in the loan agreement. 2. Crowdfunding service providers shall well document decisions on the assessment referred to in paragraph 1 and shall keep that documentation for at least 5 years after the repayment of the final instalment of the loan. 3. For the purpose of paragraph 2, any personal data as defined in Article 4(1) of Regulation (EU) 2016/679 shall be kept for no longer than 5 years after the repayment of the final instalment of the loan.
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.
Factors to be considered in assessing the financial situation of the project owner or of the crowdfunding project
1. When assessing the credit risk of crowdfunding projects or project owners, crowdfunding service providers shall consider all of the following factors in relation to 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. 2. For the purposes of paragraph 1, point (c), crowdfunding service providers shall consider the following factors when assessing other loans and liabilities that the project owner may have in place at the time of the loan request: (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. 3. When performing the assessment referred to in paragraphs 1 and 2, crowdfunding service providers shall consider relevant financial, asset class-specific or product type-specific indicators for the last 3 financial years, where available, in line with the policies set out in Chapter IV. Those indicators shall be calculated in accordance with the International Financial Reporting Standards (IFRS) or local Generally Accepted Accounting Principles (GAAP), in line with the policies set out in Chapter IV. 4. Relevant financial indicators may include, but are not limited to, the items listed in the Annex. 5. When using financial projections to assess the credit risk, crowdfunding service providers shall ensure that those projections are based on solid and prudent assumptions and are consistent with historical data and reasonable market expectations.
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.
Information on credit protection arrangements
1. When a loan granted to a project owner is secured by credit protection arrangements, crowdfunding service providers shall take all reasonable steps to gather information on: (a) the accuracy of the valuation of the collateral and guarantees; (b) the effectiveness and enforceability of the collateral and guarantees. 2. Crowdfunding service providers shall regularly assess and monitor the value of collateral and guarantees, and take appropriate action if the value of collateral materially decreases.
Information on funded credit protection
1. When the loan is guaranteed by collateral, crowdfunding service providers shall ensure that valuation of the collateral takes into account all of the following information: (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. 2. In the absence of a market to establish objectively a price or market value for the collateral, crowdfunding service providers shall consider all of the following information: (a) the assumptions that have been used to assess the value of the collateral; (b) the frequency with which the value can readily be obtained, including a professional appraisal or valuation. 3. For the purposes of paragraphs 1 and 2, crowdfunding service providers shall have in place policies and procedures to monitor the value of collateral.
Information on unfunded credit protection
Where the loan is guaranteed, crowdfunding service providers shall ensure that the valuation of the guarantee takes into account all of the following information: (a) the identity of the guarantor; (b) the type of guarantee; (c) the enforceability of the guarantee; (d) the level of protection provided by the guarantee; (e) the amount that the guarantor has committed to pay in the event of the default of the project owner or non-payment by that project owner.
Accounting information
Where audited financial statements are not available for the latest two financial years, crowdfunding service providers shall, for the purposes of Article 4(4), point (b)(i) of Regulation (EU) 2020/1503, base the assessment of the project owner’s financial situation on documents prepared by a tax adviser, sworn accountant or other certified person subject to a professional quality assurance system.
Information to be considered for loan valuation
1. When valuating each loan as referred to in Article 4(4), point (e)(i), of Regulation (EU) 2020/1503, crowdfunding service providers shall: (a) conduct a valuation of the loans granted to project owners taking account of sufficient and updated information; (b) conduct the valuation within 3 months before the granting of the loan. 2. For the purposes of paragraph 1, at the point of loan origination, crowdfunding service providers shall consider all of the following factors: (a) the maturity of the loan; (b) the frequency of instalment payments and expected future cash flows; (c) whether there is any prepayments option provided for in the loan contract; (d) a risk-free interest rate to discount the payments made out of the loan; (e) the interest rate set out in the loan agreement; (f) the probability of default by the project owner as laid down in Article 1(1) of Commission Delegated Regulation (EU) 2022/2115 ( 5 ) ; (g) the value of any collateral, if any, that the project owner has used as part of the loan agreement; (h) any guarantees and the level of protection provided by those guarantees. 3. For the purposes of paragraph 1, after the point of loan origination, the crowdfunding service provider shall take account, in addition to the factors referred to in paragraph 2, of the following factors: (a) the time to maturity of the loan; (b) expectation of future losses. 4. When crowdfunding service providers, in accordance with Article 4(4), point (e)(iii), of Regulation (EU) 2020/1503, conduct the valuation of a loan following a default, they shall carry out the valuation of collateral and guarantees in a conservative manner and shall consider other fees and expenses related to debt collection.
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