What does the Regulation on European Crowdfunding Service Providers (ECSP) mean for you as an investor?

What does the Regulation on European Crowdfunding Service Providers (ECSP) mean for you as an investor?

You have probably noticed Max Crowdfund is currently applying for the EU Crowdfund license. As of November 10, 2022*, crowdfunding service providers must have a license if they want to continue their services. In addition, the requirements arising from the new European Crowdfunding Regulation (EU) 2020/1503 must be met. This new regulation came into effect on November 10, 2021 and provides greater investor protection and transparency. Thanks to the increased standards, the same rules apply to crowdfunding service providers in all EU countries. But what does this mean for you as an investor? In this article we explain it to you.

*November 10, 2022 is the current deadline. However, this can be postponed by the European Commission for a maximum of one year.

The crowdfunding service provider is obliged to present an information sheet with each crowdfunding offer containing key investor information. It must not exceed six pages and must meet strict information requirements. This includes a disclaimer and warnings regarding the risks associated with that specific investment. This creates clarity for the investor. You know what to expect and you can make a well-considered decision.

Investor protection and security
One of the core values ​​of the ECSP is investor protection. This is the main purpose of this new regulation. Investors will have to undergo an investor test, which will test the investor's experience, knowledge, investment goals and financial situation. This applies to all investors who wish to continue investing, unless he or she qualifies as an experienced investor. This test will also check whether the investor is aware of the risk associated with an investment. This review must be repeated every two years. Based on this, the crowdfunding service provider can give advice regarding the suitability of the crowdfunding projects for the non-experienced investor.

Also, an inexperienced investor will receive a warning from the crowdfunding service provider when he or she invests more than 5% of his or her assets. If an investor fails the investor test, he or she may not invest more than 5% of the assets. If you pass the test, you may invest more than 5%, but only after a warning, acceptance and proof of awareness of the risks.

The ECSP allows a crowdfunding service provider to offer its services in all countries in the Union. This also has advantages for the investor. More international offer is being created for the investor. The inexperienced investor also gets more flexibility thanks to the pre-contractual 'cooling off' period. They can withdraw their investment without giving any reason. This reflection period is four calendar days and starts when the investor shows interest. Investors also have a right of withdrawal of fourteen days in the case of distance selling.

Finally, the reliability. Knowing that a crowdfunding service provider is licensed and meets strict requirements creates a safe feeling for you as an investor.

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