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The new legal framework for crowdfunding in Europe

The provisions of the new ‘Crowdfunding Regulation’ are applicable as of November 10th, 2021. Investors must apply to the service provider for classification as a knowledgeable investor. Existing service providers will be granted a transitional period during which they can continue to provide services within the scope of the ECSP Regulation on the basis of national legislation.



The EU Regulation on European Corporate Swarm Finance Service Providers (ECSP Regulation) recognizably pays special attention to the protection of investors, to which a separate chapter is dedicated. For the purpose of investor protection, the ECSP Regulation distinguishes between knowledgeable and non-knowledgeable investors, with investor protection provisions predominantly aimed at protecting non-knowledgeable investors. The ECSP Regulation defines a “sophisticated” investor as a person who is aware of the risks associated with an investment and who has sufficient financial resources to take those risks. In order to assess whether an investor is knowledgeable, the ECSP Regulation specifies certain criteria:

Legal entities can be classified as knowledgeable investors if they exceed one of the thresholds specified in the ECSP Regulation in terms of their own funds, net sales or total assets.

In the case of natural persons, the thresholds are based on their gross annual income, their investment portfolio, their previous professional experience in the financial sector and their previous investment experience, at least two of which must be met in order to qualify as a sophisticated investor.

Investors must apply to the service provider for classification as a knowledgeable investor, which is valid for two years thereafter.

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Basic investment information sheet

In Austria, the key provisions on crowdfunding can be found in the Alternative Financing Act (AltFG). A major facilitation of crowdfunding compared to conventional issuances is that it is not necessary to prepare and publish a capital market prospectus. In Austria, project promoters are instead required to prepare an information sheet in accordance with the AltFG. The contents and order of presentation of an information sheet are standardized in Austria. The requirements for an investment information sheet under the ECSP Regulation are similar to the prescribed presentation in Austria, although the requirements are even more extensive. The Commission will further specify the requirements for the presentation and content of the basic investment information sheet in a delegated regulation.

The promoter is required to prepare an investment base information sheet for each crowdfunding offer, which may not exceed six pages. The basic investment information sheet must contain the information set out in the ECSP Regulation, a disclaimer and warnings regarding the risks associated with an investment. During the offering period, the basic investment information sheet shall be kept up to date.

There shall be no regulatory approval process prior to the publication of the basic investment information sheet. However, service providers shall establish and implement an appropriate procedure to verify the completeness, accuracy and clarity of the information contained in the basic investment information sheet. If a service provider identifies an omission, error, or inaccuracy with a potentially material impact on the investor’s expected return, the project sponsor shall improve the basic investment information sheet in that regard. If the improvement is not promptly made by the Project Proponent, the offering shall be suspended for the time being or, as a last resort, cancelled by the Service Provider.   

Suitability and loss-absorbing capacity test

Before service providers are allowed to grant non-knowledgeable investors unrestricted access to investments on the platform, they must check which services are suitable for an investor. In the course of this suitability review, investors are assessed with regard to their experience, knowledge, investment objectives, financial situation as well as their understanding of the risks associated with an investment. The review must be repeated every two years.

In addition, service providers must simulate a loss of 10% of the assets of an uninformed investor each year. This ‘stress test’ is intended to determine whether investors would be able to withstand potential losses to a sufficient degree.

Maximum investment amount

Each time before a non-sophisticated investor invests more than $1,200 (€1,000) or 5% of his assets, whichever is higher, the service provider shall ensure that the investor receives a risk warning as well as that the investor gives explicit consent to the service provider and proves that he understands the investment and its risks.

Pre-contractual cooling-off period

Service providers shall grant a pre-contractual cooling-off period to non-expert investors, during which investors may revoke an offer or expression of interest at any time without giving reasons and without incurring a penalty. The cooling-off period is four calendar days and begins with an investor’s expression of interest. Investors are additionally entitled to a fourteen-day right of revocation from distance selling. In future, this will lead to the impractical situation for service providers that investors can invoke two different withdrawal options with different withdrawal periods.

Marketing communications

All marketing communications by a service provider must be identifiable as such, comply with the national legislation applicable to them, and their compliance will be monitored. They must not make disproportionate reference to individual projects. In addition, the information contained in a marketing communication must be consistent with the information contained in an investment fact sheet.

Interim Conclusion

The ECSP Regulation aims to achieve the highest possible level of protection for investors through numerous measures. This is expressly to be welcomed from an investor protection perspective, and even if the ECSP Regulation achieves this goal to a large extent, individual measures do overshoot the mark. For example, the periodic suitability test and the test of loss-bearing capacity of non-expert investors are bureaucratic and impractical for service providers, especially in view of the low maximum investment amounts. In any case, the ECSP Regulation will significantly increase the requirements for service providers.

A positive aspect is the distinction made in the ECSP Regulation between knowledgeable and non-knowledgeable investors. This categorization, which is based on MIFID, creates a differentiated level of protection for investors and appears to be an important step towards attracting more investments from professional investors to the crowdfunding market in the future.


(Featured image by Karolina Grabowska via Pexels)

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First published in CROWDCIRCUS, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.

Daphne Freeman has worked in the crowdfunding and impact investing industry for the past few years, gaining experience in marketing, and connecting businesses and entrepreneurs in need with the right investors. As a seasoned grant writer as well as financial market journalist, she is passionate about making a social impact in the world. A free spirit, Daphne also enjoys writing and exploring topics of interest, currently CBD, health and beauty, and social media influencers.

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