(1)

It is necessary to enable investors to make informed investment decisions. Since one crowdfunding project may offer more than one loan, it is necessary, when specifying the methodology for calculating the default rates of projects offered on a crowdfunding platform, to lay down rules for the calculation of default rates at the level of each individual loan with regard to a particular crowdfunding project offered on a crowdfunding platform. A definition of default at a more granular level, i.e., at the loan level, allows to capture cases where a project owner is unlikely to fulfil its credit obligations related to one loan but not to others. Therefore, to calculating the default rates of projects offered on a crowdfunding platform, crowdfunding service providers should not automatically consider the different loans to the same project as defaulted at the same time. Crowdfunding service providers should assess whether some indications of default are related to the crowdfunding project as a whole, rather than a particular loan. In particular, where a significant part of the loans related to a crowdfunding project is in default, crowdfunding service providers may consider it unlikely that the other loans of that crowdfunding project will be paid in full without recourse to actions, including realising security and treat those loans as defaulted as well.

(2)

It is necessary to avoid regulatory arbitrage and to enable investors to compare the performance of crowdfunding service providers who provide crowdfunding services consisting of the facilitation of granting of loans, and, in particular, the quality of projects offered on crowdfunding platforms. It is therefore appropriate to specify the elements on the basis of which such crowdfunding service providers should consider a default to have occurred with regard to a loan offered on their crowdfunding platform. Those crowdfunding service providers should therefore have in place effective processes that enable them to obtain the necessary information in order to identify, without undue delay, the occurrence of the default of loans offered on their crowdfunding platform.

(3)

Article 20(1), of Regulation (EU) 2020/1503 requires crowdfunding service providers which provide crowdfunding services consisting of the facilitation of granting of loans to disclose annually the default rates of the crowdfunding projects offered on their crowdfunding platform over at least the preceding 36 months and publish an outcome statement within 4 months of the end of each financial year indicating the expected and actual default rate of all loans they have facilitated. In order to make sure that investors and potential investors have access to information with similar time horizons for risk and reward metrics in relation to the loans offered on a crowdfunding platform, it is necessary to ensure consistency with Article 180(1), point (a), of Regulation (EU) No 575/2013 of the European Parliament and of the Council (2), and use 1-year default rates as reference for the calculation of default rates. The 1-year default rates represent the share of loans going from a non-defaulted status into a defaulted status at least once during a 1-year observation period. Hence, the expected default rate should provide an estimate of the proportion of non-defaulted loans that are expected to default in a 1-year observation period. Consequently, in order to base the estimation of such expected default rate on the actual default rate, the calculation of the actual default rate should be restricted to loans which are in a non-defaulted status at the beginning of the 1-year observation period. To ensure a comparable and fair representation of the default rates, no weighting scheme should be applied to calculate the yearly default rates (loan-based calculation). Hence, the monetary amount of the loans should not be used for the calculation of the default rates to avoid that more predominance is given to some loans in such calculation. In case of bias due to the presence of short-term loans, crowdfunding service providers which provide crowdfunding services consisting of the facilitation of granting of loans should adjust the calculation of the default rate. To ensure a fair representation of the default rates to investors, crowdfunding service providers which provide crowdfunding services consisting of the facilitation of granting of loans should not manipulate or misrepresent the default rates published in accordance with Article 20(2) of Regulation (EU) 2020/1503.

(4)

Inconsistent, inaccurate, incomplete, or outdated data may lead to errors in the calculation of the default rates of crowdfunding projects. Consequently, to ensure reliability and high quality of data, the procedures related to gathering and storing of data should be robust and well documented.

(5)

Crowdfunding service providers’ internal method for the calculation of the actual and expected default rates should be based on information about the performance of loans facilitated by those crowdfunding service providers and the risk categories set out in the risk-management framework referred to in Article 19(7), point (d), of Regulation (EU) 2020/1503.

(6)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Securities and Markets Authority (‘ESMA’), in close cooperation with the European Banking Authority.

(7)

ESMA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (3).

(8)

The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 of the European Parliament and of the Council (4) and delivered an opinion on 1 June 2022,