Governance arrangements for information for clients
1. For the information to clients as referred to in Article 19 of Regulation (EU) 2020/1503, crowdfunding service providers shall have in place an adequate governance framework and shall have a written description thereof.
2. For the purposes of paragraph 1, crowdfunding service providers shall ensure all of the following:
(a)
that all information provided to clients is complete and updated;
(b)
that internal governance arrangements, processes and mechanisms for disclosing information to clients are proportionate to the size and complexity of the crowdfunding service provider.
3. Crowdfunding service providers shall ensure that all quantitative disclosures to clients are accompanied by a qualitative narrative and other supplementary information that may be necessary for clients to gain a full understanding of the quantitative disclosures.
Policies for disclosing information to clients
1. The policies for disclosure of information to clients as referred to in Article 19 of Regulation (EU) 2020/1503 shall ensure that all the information for clients is presented in a way that is easy to read, and expressed in a manner that facilitates understanding, in particular by prospective non-sophisticated investors.
2. Crowdfunding service providers shall ensure that the policies to provide sufficient information to clients contain all of the following elements:
(a)
the frequency for updating information provided to clients;
(b)
the roles or functions responsible for preparing the information for clients
(c)
the treatment of information that may impact the pricing of a loan (price sensitive information);
(d)
the process for validating information for clients.
3. The management body of the crowdfunding service provider shall approve the policies, procedures and organisational arrangements relating to the disclosure of information to clients, and those policies shall be in writing, regularly updated, and well documented.
Establishment of a risk management framework
1. The risk-management framework referred to in Article 4(4)(f) of Regulation (EU) 2020/1503 shall be:
(a)
integrated into the crowdfunding service provider’s overall organisational and decision-making structure;
(b)
proportionate to the complexity of the crowdfunding service provider business operating model.
2. Within their risk-management framework, crowdfunding service providers shall specify the roles or functions responsible for credit risk assessment and monitoring tasks, the process of approval of crowdfunding projects to be proposed to investors, and loan valuation.
3. Crowdfunding service providers shall establish transparent reporting frameworks. Those reporting frameworks shall ensure that the management body of crowdfunding service providers and roles and functions are provided with adequate information enabling them to measure, assess and monitor credit risk. The reporting framework shall be sufficiently detailed and documented.
4. The management body of the crowdfunding service provider shall oversee implementation of the governance and organisational arrangements relating to the risk-management framework, including the establishment, maintenance and publication of the respective policies and procedures.
Roles and functions established in the risk management framework
1. The roles and functions established in the risk management framework shall be responsible for the following:
(a)
assessing the credit risk of crowdfunding projects and project owners for scoring purposes in accordance with Chapter III;
(b)
assigning loans to appropriate risk categories;
(c)
designing appropriate processes for credit risk monitoring and reporting;
(d)
establishing appropriate processes to deal with situations in which the project owner is unable to fulfil its obligations or is in default, as laid down in Article 1(1) of the Delegated Regulation (EU) 2022/2115.
2. Where crowdfunding service providers perform individual portfolio management tasks in respect of loans in accordance with Article 6 of Regulation (EU) 2020/1503, they shall have in place a detailedand documented process to allocate investors’ funds among crowdfunding projects.
3. Crowdfunding service providers that suggest the pricing of crowdfunding offers shall have in place an adequate pricing framework, supported by appropriate documentation and governance structures responsible for taking pricing decisions.
Risk categories
1. Crowdfunding service providers shall ensure that the assignment of loans to risk categories in accordance with Article 18(1)(b) reflects:
(a)
the levels of risk of the respective crowdfunding projects as determined by the output of internal credit scoring models in accordance with Chapter I;
(b)
specific factors that are related to the loan, including, but not limited to, the interest rate, the maturity of the loan and the frequency of payment instalments.
2. Crowdfunding service providers shall ensure that:
(a)
the risk-management framework contains adequate procedures for reviewing the assignment of loans to categories and for re-assigning them to a new risk category whenever there is a change in the respective credit scoring or in other factors related to the loan;
(b)
each risk category is associated with a probability of default.
Approval of crowdfunding projects
1. Within the risk-management framework, crowdfunding service providers shall establish clear and well-documented processes for approving crowdfunding projects to be proposed to investors.
2. The processes established in accordance with paragraph 1 shall set out the responsibilities of the relevant role and functions within the organisational structure of the crowdfunding service provider.
3. Crowdfunding service providers shall ensure that members of staff that can approve projects to be proposed to investors are adequately trained and have relevant expertise and seniority in relation to the specific powers delegated to them.
Use of automated models
1. Where automated models are used for assessing credit risk of crowdfunding projects or project owners and for approving crowdfunding projects to be proposed to investors, crowdfunding service providers shall ensure that:
(a)
the roles and functions concerned have a good understanding of the methodology of those models, their input data, and their assumptions and limitations;
(b)
the management body has a sufficient understanding of the use of technology-enabled innovation applied to financial products;
(c)
the automated models are fit for purpose, and that their use is proportionate to the size and complexity of the activity of the project owner, of the crowdfunding project and the amount of the loan.
2. For the purposes of paragraph 1, crowdfunding service providers shall have in place policies and procedures and set out appropriate governance arrangements for the design and use of such automated models.
3. The policies and procedures referred to in paragraph 2 shall:
(a)
ensure the quality of data used as input for the automated models;
(b)
ensure that the quality of output of the automated models is regularly assessed;
(c)
establish criteria for deciding when the outcome of such automated models can be overruled.
4. Crowdfunding service providers shall have in place adequate documentation covering the methodology, data input and the criteria that automated models use for assessing credit risk, monitoring credit risk and approving crowdfunding projects to be proposed to investors.
Policies for credit risk assessment
1. Within their credit risk management framework, crowdfunding service providers shall set out appropriate credit risk policies and procedures for determining the criteria for credit risk assessment and monitoring.
2. Crowdfunding service providers shall have in place credit risk management policies and procedures specifying all of the following:
(a)
the process for approving crowdfunding projects to be proposed to investors;
(b)
the process for assigning crowdfunding projects and project owners to risk categories in accordance with Article 19;
(c)
the information and factors to be used to assess the creditworthiness of crowdfunding projects and project owners in accordance with Chapter II;
(d)
the criteria for accepting and using credit risk mitigation measures;
(e)
the conditions for the use of automated decision-making in the process for approving crowdfunding projects to be proposed to investors;
(f)
the circumstances in which deviations from standard procedures are possible;
(g)
the process for monitoring credit risk after the point of loan origination;
(h)
the processes for dealing with project owners who are late in repaying their loans.
3. The credit risk policies and procedures referred to in paragraph 1 shall:
(a)
be proportionate to the size and complexity of the crowdfunding projects offered on the crowdfunding platform;
(b)
clearly identify the roles and/or functions responsible for carrying out the relevant tasks;
(c)
be documented and kept updated.
4. The credit risk policies referred to in paragraph 1 shall specify whether and how crowdfunding service providers include environmental, social and governance risks in crowdfunding projects’ credit risk assessment.
Entry into force
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union .
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
