The European Crowdfunding Service Providers Regulation (ECSPR) sets a new standard for transparency and investor protection in the crowdfunding sector. Compared to previous national rules and other EU laws governing retail investment, ECSPR introduces more robust requirements for the information crowdfunding platforms must provide to their clients.
These provisions aim to safeguard investors by ensuring they receive clear, accurate, and comprehensive details about crowdfunding services, risks, and costs, ultimately enabling better-informed decision-making. Let’s delve into the key aspects of ECSPR that enhance investor confidence and trust.
Transparent and Reliable Information
The ECSPR requires that all information provided by crowdfunding platforms—whether through marketing or platform content—be fair, clear, and not misleading. This includes information about:
- The platform itself.
- Costs, financial risks, and charges related to investments.
- The criteria for selecting crowdfunding projects.
- The nature and risks of crowdfunding services.
This information must be provided to investors before they engage in any transaction and be readily accessible to all clients in a clearly identifiable section of the platform’s website.
Example: A crowdfunding platform must clearly state any fees investors will incur, explain how projects are selected, and outline potential risks to help investors make informed decisions.
Key Takeaway: Crowdfunding platforms must provide transparent, non-discriminatory access to crucial information on costs, risks, and project selection criteria.
No Deposit-Guarantee or Investor Compensation Schemes
Crowdfunding platforms are required to inform investors that their services are not covered by:
- The deposit-guarantee scheme under Directive 2014/49/EU, or
- The investor compensation scheme under Directive 97/9/EC.
This information must be prominently displayed in a dedicated section of the website for all clients to access.
Example: Investors need to understand that their crowdfunding investments lack safety nets like those provided by traditional banking or financial products.
Key Takeaway: Investments through crowdfunding platforms are not protected by deposit-guarantee or investor compensation schemes. Platforms must clearly communicate this limitation to all clients.
Reflection Period for Non-Sophisticated Investors
Non-sophisticated investors are given a 4-calendar-day reflection period to reconsider their crowdfunding investments. Platforms must prominently display this information wherever crowdfunding offers are made, including on websites and mobile apps.
Example: An investor sees an attractive crowdfunding offer on a platform. After committing, they realize it’s not the right fit. Thanks to the reflection period, they can reverse their decision within four days.
Key Takeaway: Non-sophisticated investors have 4 days to reflect and reconsider their investments, ensuring a safety mechanism for those less experienced in the market.
Transparency in Credit Scores and Suggested Prices
If crowdfunding platforms assign credit scores to projects or suggest prices for crowdfunding offers, they must:
- Clearly explain the methods used to calculate these scores or prices.
- Disclose if the calculations rely on unaudited financial statements.
This information must also be accessible to all clients in a non-discriminatory manner via a clearly identified section of the platform’s website.
Example: A platform suggests a price for a crowdfunding project based on unaudited financial data. They must disclose this fact and explain the calculation method to investors.
Key Takeaway: Platforms using credit scores or suggesting prices must explain their methods transparently and disclose if unaudited financials are involved.
Conclusion
The ECSPR introduces a robust framework for transparency and investor protection in the crowdfunding space. By mandating clear, accessible, and non-misleading information, it ensures that investors—whether experienced or new—can make informed decisions with confidence. From reflection periods for non-sophisticated investors to disclosures on credit scores and safety net limitations, the regulation fosters trust and accountability, paving the way for greater participation in the crowdfunding ecosystem.
