Crowdfunding service providers

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How to obtain authorisation?

Obtaining authorisation is a regulated process whereby you can become a participant of Latvia’s financial market and commence business after obtaining authorisation.

Crowdfunding services may be provided by a legal persona who has obtained authorisation granted by the Financial and Capital Market Commission (hereinafter – the FCMC) in accordance with Regulation No 2020/1503.

Crowdfunding is a form of alternative finance for start-ups and small and medium-sized enterprises. Crowdfunding is an important intermediary when a crowdfunding service provider, without taking own risk, leads a digital platform available to the public to bring potential investors or lenders together with enterprises seeking financing. Such financing may take the form of loans or investments in the capital of an enterprise.

Three types of participants are involved in the provision of crowdfunding services: the project owner proposing the project to be financed, the investors financing the proposed project and the crowdfunding service provider bringing together the project owners and investors on the online platform.

Qualification requirements for the crowdfunding service provider:

  • persons involved in the management have adequate education and experience to manage the crowdfunding service provider;
  • persons involved in the management and in the case of shareholders holding 20% or more of their share capital or voting rights with good repute and no criminal record in accordance with the requirements of the paragraph 3 of Article 12 of Regulation No 2020/1503;
  • provision of own funds of at least 25 000 euro or capital requirement (a quarter of fixed overheads in the previous year), if it is more than 25 000 euro, or insurance policy or a combination of own funds and insurance policy.

Regulation No 2020/1503 does not apply to:

  • crowdfunding services provided to project owners who are consumers;
  • crowdfunding offers with a total consideration exceeding 5 000 000 euro over a period of 12 months. In excess of the limits specified, a financing offer must be organised in accordance with the requirements of the Financial Instruments Market Law;
  • commercial activities related to the marketing of credit claims issued by credit providers on web platforms. Such commercial activity must be authorised by an investment firm or credit institution. See details on licensing of other financial market participants (https://www.fktk.lv/en/licensing/).

The process of obtaining authorisation comprises several steps:

  1. Preparation for the submission of application
  2. Submission of application
  3. Assessment of application
  4. Receipt of authorisation

Apply for advice! Please apply in advance to agree on the meeting time: fktk@fktk.lv, +371 67 774 800.

1. Preparation for the submission of application

Preparation for the submission of application: an introductory stage, during which the FCMC organises a meeting with an entrepreneur to discuss its planned At this stage, the enterprise does not necessarily have to be established yet.

What does the entrepreneur do?

  • Prepares information on the shareholder, stockholder and officials of the enterprise
  • Prepares general information on the type of capital financing and the origin of funds
  • Prepares information on the planned business model: procedures for the provision of services, organising payment flows, customers, countries in which the service will be provided
  • Starts the drafting of the necessary documents

What does the FCMC do?

  • Provides advice regarding the applicable regulatory framework
  • Carries out an assessment of the initial business project and procedures
  • Assesses whether the authorisation process can be continued
  • Provides advice on documents to be submitted

What should be taken into account?

Documents to be submitted:

  • the CVs of the shareholder, stockholder and officials;
  • a description of the service and its provision;
  • general information on the type of planned capital financing and the origin of funds.

Costs

Preparing for submission of the application and provision of advice by the FCMC are free of charge.

2. Submission of application

Submission of application: An entrepreneur prepares and submits an application for authorisation.

What does the entrepreneur do?

  • Submits a fully completed application and all necessary information, documents in accordance with the requirements of Article 12 of Regulation No 2020/1503 and with the Regulatory Technical Standards for the authorisation
  • Receives information from the FCMC regarding the starting the examination of the application for authorisation or on deficiencies to be addressed in the submitted application
  • Provides the necessary additional explanations

What does the FCMC do?

  • Carries out an assessment of the completeness of the application within 25 working days (the assessment of the application as to the substance is not yet ongoing)
  • If the application is incomplete, the FCMC sends a letter to the entrepreneur indicating the deficiencies identified which need to be addressed
  • If the application is complete, the FCMC sends a letter to the entrepreneur informing that an assessment of the application for authorisation is started
  • The FCMC designates the project manager and gives the entrepreneur access to the project management tool, which will help to follow the process

What should be taken into account?

  • Before submitting the application, please apply for advice offered by the FCMC experts
  • Make certain that the documents to be submitted are complete and of high-quality
  • Check that all necessary documents have been submitted (see a list of documents to be submitted)

List of documents to be submitted

Requirements for the list of documents to be submitted are laid down in Article 12 of Regulation No 2020/1503 and Regulatory Technical Standards for obtaining authorisation (hereinafter – RTS). Currently, ESMA has finalised development of RTS and has published the final draft version, which is pending adoption by Europen Commission; however, please use the draft form in the Annex to the RTS, which is currently available only in English, but you may also complete it in Latvian.

1. A legal person submits an application for authorisation as a crowdfunding service provider. The application shall be prepared in accordance with the RTS requirements.

2. The application is accompanied by:

2.1. a programme of operations describing the intended types of crowdfunding services and the crowdfunding platform that it intends to operate, including where and how crowdfunding offers are to be marketed;

2.2. a description of governance arrangements and internal control mechanisms to ensure compliance with the Regulation, including risk management and accounting procedures;

2.3. a description of IT systems, resources and procedures for the control and safeguarding of the data processing systems;

2.4. a description of operational risks and the procedures for their management;

2.5. a description of prudential safeguards in accordance with Article 11 of Regulation (including financial forecasts for the following three years);

2.6. proof that prudential safeguards are met in accordance with Article 11 of Regulation;

2.7. a description of business continuity plan which, taking into account the nature, scale and complexity of the crowdfunding services, establishes measures and procedures that ensure, in the event of failure of the prospective crowdfunding service provider, the continuity of the provision of critical services related to existing investments and sound administration of agreements between the prospective crowdfunding service provider and its customers;

2.8. documents certifying the identity of the natural persons responsible for the management of the prospective crowdfunding service provider;

2.9. CV and certificate from the criminal record register on absence of a criminal record from countries where the persons for the management of the prospective crowdfunding service provider and for shareholders who hold 20 % or more of the share capital or voting rights have carried out commercial activities. In addition, provide information on the education of the persons involved in the management and proving that those persons have sufficient knowledge, skills and experience, necessary to manage the prospective crowdfunding service provider;

2.10. a description of internal rules aimed at preventing persons referred to in paragraph 2 of Article 8 of the Regulation from participating in crowdfunding services offered by project owners;

2.11. a description of procedures for outsourcing;

2.12.  a description of procedures for handling customer complaints;

2.13. a description of the procedures for organising payment flows, including confirmation of whether the prospective crowdfunding service provider intends to provide payment services on its own or through a third party in accordance with Directive (EU) 2015/2366, or the procedures in accordance with paragraph 5 of Article 10 of Regulation;

2.14. a description of the procedures to verify the completeness, correctness and clarity of the information contained in the key investment information sheet;

2.15. a description of procedures in relation to investment limits for non-sophisticated investors referred to in paragraph 7 of Article 21 of Regulation.

Costs (draft version – final costs will be approved by national law)

2 500 euro for examining documents and information submitted for authorisation (should be paid upon official submitting of the application)

Time limit for examining the application

The FCMC starts examining the application within 3 months from confirmation that the application is complete. The time limit for examining the application may be extended if the information provided in the application is not sufficient to take a decision on the issue of authorisation.

3. Assessment of application

Assessment of application: The FCMC carries out the assessment of the application as to the substance.

What does the entrepreneur do?

  • Follows the examination process by using the project management tool
  • Provides answers to additional information requests by the FCMC as soon as possible
  • Corrects the submitted documents according to the FCMC instructions
  • Participates in meetings held by the FCMC

What does the FCMC do?

  • Carries out the assessment of the application as to the substance
  • Contacts the contact person of the entrepreneur in case of identification of deficiencies
  • Draws up a letter if deficiencies are identified in the application
  • Continues the examination of the application pursuant to the additions submitted
  • Completes the examination of the application

What should be taken into account?

  • Follow the course of the examination of the application
  • Provide additional explanations and make the necessary corrections as soon as possible
  • Representatives of the entrepreneur are invited to participate in meetings of the FCMC, not just consultants (if any)

Costs

No additional costs associated with the examination of documents during the assessment stage of the application are applied.

4. Receipt of authorisation

Receipt of authorisation: The FCMC finalises the examination of the application and takes a decision on the issue or refusal to issue authorisation.

What does the entrepreneur do?

  • Prepares to obtain authorisation and commence operations in accordance with the business plan
  • Designates users of the FCMC Data Reporting System for future communication with the FCMC and submission of performance reports

What does the FCMC do?

  • Prepares a decision on the issue or refusal to issue authorisation
  • Informs the entrepreneur of the decision taken
  • Places information on the website and sends a copy of the decision to the ESMA

What should be taken into account?

  • Please refer to the information provided by the FCMC on access to the Data Reporting System
  • Please refer to information related to the requirements and procedures for reporting
  • Prepare to commence activities in accordance with the approved business plan and procedures

Costs

No additional costs associated with obtaining authorisation during the stage of obtaining authorisation.

5. Supervision

Supervision: The FCMC supervises activities of the enterprise in accordance with requirements of Regulation No 2020/1503

What does the entrepreneur do?

  • Provides answers to the FCMC’s requests
  • Prepares reports in accordance with laws and regulations
  • Notifies the FCMC of changes in documents submitted for authorisation
  • Notifies the FCMC of changes in the procedures for the provision of crowdfunding services
  • Reports on material incidents in the course of the provision of crowdfunding services
  • Gets acquainted with the enterprise’s curator designated by the FCMC

What does the FCMC do?

  • Designates the enterprise’s curator
  • Assesses compliance of enterprise with the regulatory requirements
  • Requests additional information on the business and performance of the enterprise
  • Examines the reports submitted and supervisory information
  • Cooperates with the ESMA on supervisory issues

What should be taken into account?

  • In case of uncertainties, please contact the curator designated by the FCMC.
  • Submit reports and requested supervisory information on a regular basis.
  • Notify of changes in the process of the provision of services, as well as changes in documents submitted for authorisation, including in case of changes to the structure officials or participants.

Costs (draft version – final costs will be approved by national law)

After registration in the register of crowdfunding service providers, the enterprise pays 4 000 euro per year for the financing of FCMC’s activities and up to 1.4 percent (inclusive) per year of gross revenue, but not more than 100 000 euro per year.

Process of obtaining authorisation

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Meeting with the prospective crowdfunding service providers

The FCMC specialists offer advice to prospective market participants to help better understand the regulatory requirements on the process of registering crowdfunding services, as well as to identify potential challenges by developing new and innovative products or business models.

Our specialists offer:

  • Clarify certain aspects of regulatory requirements;
  • Advise on the application of regulation at an early stage of development of an innovative product or business model.

Please apply in advance to agree on the meeting time: fktk@fktk.lv, +371 67 774 800.

Useful information

Contacts


Address:
Kungu iela 1, Riga, LV-1050
Phone:
6 7774800
E-mail:
To report on unauthorised firms
Data protection

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