First glance at Co-Funding Services Bill

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In early September, the meeting of state secretaries heard an announcement of the Co-Funding Services Bill, which lays down rules and requirements for the provision of peer-to-peer (P2P) lending services.1 Although the Bill has just started on its way to official government approval, we can already see what areas it is to govern. This article takes a look at some of them.
Co-funding platforms
In its current version, the Bill covers only P2P lending platforms and does not apply to equity crowdfunding.2
The Bill lays down procedures for licensing and supervising co-funding platforms and provides that a co-funding service provider may start trading in Latvia once it has been entered on the register of co-funding service providers maintained by the Financial and Capital Market Commission (FCMC). So the FCMC is responsible for registering co-funding service providers and supervising their operations.
The Bill imposes a €50,000 share capital requirement on co-funding service providers. The Bill also outlines payments intended to finance the FCMC operations and prescribes a registration duty of €4,000 and an annual duty of €7,000 plus up to 1.4% of the co-funding service provider’s gross annual revenue.3
It is important to note that the Bill changes the usual way that P2P lending platforms operate, with claim rights being offered for investors to purchase (by entering into a contract of assignment) relating to loans already made to consumers. According to the proposed rules, P2P lending services will be provided without assignment of claims. Instead, an investor will enter into a special agreement with a co-funding service provider, under which the investor transfers funds to the co-funding service provider in order to have those issued to a funding recipient chosen by the investor, or to finance the funding recipient by acquiring the lender’s credit claims and issuing funds to the lender in return for the credit claims acquired by the investor.
Among other things, co-funding service providers are subject to a cap on how much funding they can raise, i.e. a co-funding service provider is permitted to raise investors’ funds for a single funding recipient to a total that does not exceed the following amount over 12 months:
  1. €10,000 when providing a service that results in the investor lending funds to the funding recipient as an individual;
  2. €100,000 when providing the above service and a service that results in the investor lending funds to the funding recipient for carrying out a project he has notified.
The Bill mainly governs the following areas:
  1. How a service provider can be registered and start trading;
  2. General requirements for the service provider’s operations;
  3. Capital requirements and distribution of profits;
  4. Contractual relationships between service providers and administration of payments;
  5. Protection of investors’ interests;
  6. Preventing conflicts of interest;
  7. FCMC supervisory functions;
  8. Information to be provided to the FCMC and advertising restrictions;
  9. Transition rules designed to help existing service providers switch to the new legal framework.
With the Bill still facing the parliamentary process of legislation, changes are likely to be made to its current wording. We will keep subscribers informed.
1 Along with the Bill, there are plans to make appropriate amendments to the FCMC Act, the AML/CTF Act, the Consumer Protection Act, and the Register of Loans Act.
2 The annotation to the Bill states that co-funding platforms with financial returns are divided into peer-to-peer lending and equity crowdfunding.
3 The duty is capped at €100,000 a year.


Janis Gavars
PwC Legal
Tel: +371 67094400
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