Röntgen is one of the largest real estate crowdfunding platforms in Lithuania. Their operations are licensed and overseen by the Bank of Lithuania. The platform was launched in January 2018. Since then they helped to raise more than 15m EUR investments from more than 9000 investors.
The platform advocates the democratization of finance. For years investing in real estate was accessible only to professional investors. The entry barrier in terms of the minimum investment, associated fees, and experience and/or knowledge was just too high. Röntgen’s crowdfunding focuses on almost anyone being to invest. Such organizations must be able to distribute their resources responsibly. Case study Röntgen reviews the relationship between real estate crowdfunding and Electronic money institutions.
BACKGROUND
Crowdfunding kicked off in Europe in the early 2010s and almost immediately gained momentum. Each country implemented a separate legislative framework thus creating regulatory inconsistencies: within operating conditions, the scope of permitted activities, and the licensing requirements. In addition to segmentation of rules and supervisory expectations, the absence of passporting rights made it difficult for crowdfunding to operate across borders.
To adjust crowdfunding market regulations in the EU the Parliament and Council proposed a new legislative framework. It aims to remove barriers for European Crowdfunding Service Providers (ECSPs) to provide their services on a cross-border basis. At the same time, it harmonizes the regulatory requirements and investor protection rules that apply across the member states.
The EU’s Crowdfunding Service Providers Regulation and a Directive entered into force on November 9, 2020, with its scheduled date of application beginning November 10, 2021. Amongst many benefits for investors, service providers, and regulators, they also bring new challenges. Particularly Clause 4 (Article 9):
“Where crowdfunding service providers do not provide payment services or the holding and safeguarding of funds in relation to the crowdfunding services either themselves or through a third party, such crowdfunding service providers shall put in place and maintain arrangements to ensure that project owners accept funding of crowdfunding offers or any payment only by means of a payment service provider as defined in Article 4(11) of Directive (EU) 2015/2366.”
The key element here is that the European crowdfunding service providers must be able to provide payment, holding, and safeguarding services. In other words, it says that they must acquire an additional EMI license.
OPPORTUNITY
Röntgen had two options. To undergo a long and costly process of acquiring an EMI license by themselves. Or to innovate with an existing EMI and develop a solution that complies with the new regulations.
APPROACH
Verified Payments offered a twofold solution, solving both regulatory and technical challenges.
To meet the regulatory requirements Röntgen became the intermediary of the Verified Payments EMI license. As a result, this enables them to open dedicated nominal investment accounts for their customers. It effectively separates funds of investors and the company.
After carefully re-evaluating Case Study Röntgen, Verified Payments proposed a solution that safeguards the investments until the investment round is over. Once the investment campaign target is met, It transfers the investment funds to the accounts of beneficiaries and investors.
RESULTS
- Röntgen saved hundreds of thousands of Euros and at least a year by becoming a beneficiary instead of acquiring their own EMI license.
- Röntgen benefited from fully automated and fully compliant processes.
- No additional registration or verification processes for investors of the platform.
- Dedicated accounts for investors completely free of charge.
- Röntgen became fully compliant with the European regulations enabling it to passport its services to other member states.