Additional Investor Protection in Crowdfunding in the EU

Recently, the final text on the regulations of the European Parliament and the European Crowdfunding Council has become available to the general public. The document addresses many important aspects that relate to investor safety. In particular, it contains answers to the questions of who can invest on the crowdfunding platform in the EU, what standards are applicable to communication with investors in the framework of marketing campaigns, how to prepare pre-contractual information, and also what are the rights of investors who want to cancel or sell their investments. 

Rank Investors

Crowdfunding services are inherently open to an unlimited circle of investors. Nevertheless, it should be noted that the persons participating in crowdfunding as investors differ. However, everyone needs adequate protection for their investments. Therefore, the new regulation introduces the concept of experienced and inexperienced investors. A ranking is also established for the levels of guarantees for investor protection for each of these categories.

The document also provides a distinction between professional and retail customers established by MiFID2.

However, there is a significant caveat: when launching a crowdfunding platform in Europe it is important to consider the characteristics of the crowdfunding market, which is changing rapidly, so the standards should be reviewed every two years.

Protecting crowdfunding investors in the EU

Investments in any project, especially with crowdfunding, are often fraught with various pitfalls. In accordance with the new regulation, before gaining access to investing in crowdfunding projects in the EU, the platforms are required to test the knowledge of potential non-professional investors and their awareness of possible risks. During the test, it is necessary to find out the level of understanding by investors of the risk associated with crowdfunding investments. During the audit, information is requested about the investor’s experience and his understanding of the risks involved in investing in general and in crowdfunding in particular, his goals, how stable his financial situation is, etc.

EU crowdfunding platform registration: investor requirements

Investors who are not professionals in their own right can now make a request so that they are treated as experienced investors.

To do this, simply fill out a special form in which to confirm that you meet the following criteria:

•  as a legal entity with own funds of at least  EUR100,000, net turnover of at least 2 million EUR;
•  as an individual, personal gross income of at least EUR60,000, or a portfolio of cash deposits and financial assets worth more than EUR100,000.

But that is not all. You must confirm that the quarterly number of your transactions is at least 10 in capital markets. And the most important point is the confirmation that you are fully aware that now you are left without the protection available to inexperienced investors.

If you want to open a crowdfunding platform in the EU, you need to get a clear consent of investors that they are responsible for the information provided. In addition, an inexperienced investor, before making investments amounting more than EUR1000, must necessarily receive a warning about the risk.

Legal assistance

If you are seeking legal assistance when launching crowdfunding in the EU, contact the experienced IQ Decision UK specialists. We are well aware of European legislation, we have the necessary experience, which guarantees professional advice at any stage of the project. Our services allow you to efficiently perform all the necessary steps for the project implementation, and maximize its security.