Either a maximum administrative fine of €500,000, or a fine of up to 5% of the annual turnover of businesses will be imposed in case of violation of the law on the provision of crowdfunding services for businesses.
With a bill submitted to the Parliament, the 5% fine will be calculated based on the latest available financial statements approved by the board of directors of the legal entity.
This is a harmonizing bill that transposes a European directive into Cypriot law.
According to the European Commission's services, the relevant EU crowdfunding regulation does not specify exactly when a fixed fine of up to €500,000 should be imposed instead of a fine calculated as a percentage of turnover. However, they emphasize that the main goal is for sanctions to be effective, fair and dissuasive.
For this reason, according to the bill that will soon be discussed in the parliamentary Committee on Finance, it is provided that national legislation must include both options for fines, so that the competent authority has the possibility, on a case-by-case basis, to choose the most appropriate one, depending on the size of the company and the gravity of the violation.
This legal framework covers businesses seeking financing for a business activity or project through a licensed crowdfunding platform.
The framework is mainly designed as an alternative source of funding for start-ups and small and medium-sized enterprises, but does not exclude other businesses that meet the criteria of the platform and the regulatory framework
The main purpose of the bill is the better harmonization of the basic law with Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for enterprises (Crowdfunding Regulation), following suggestions by the European Commission (DG FISMA) in the context of a completeness check of the national measures transposing the regulation into Cypriot law.
The EU Regulation provides for uniform, proportionate and directly applicable requirements for the provision of crowdfunding services, the operation, organisation, authorisation and supervision of providers, as well as requirements for transparency, investor protection and advertising of services in the Union.
Among other things, the legislation regulates who has the right to be crowdfunding service providers in the Republic. It also determines the responsibility for the information provided to investors, with the Cyprus Securities and Exchange Commission being the competent authority. It also provides for administrative sanctions and other administrative measures.
A note accompanying the bill states that member states were obliged to publish by 10 November 2021 the necessary measures to comply with the EU regulation.
At the same time, it is emphasized that in case of delay in harmonization, the Republic of Cyprus may face serious legal consequences, as in the event of an appeal by the European Commission to the Court of Justice of the European Union, conviction is considered possible, with the imposition of significant fines.
Finally, it is noted that the proposed bill is the only permissible option, as it is a supplement to mandatory harmonizing provisions in national legislation and provides for the repeal of the existing law.
