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The Crowdfunding Regulation strengthens the protection of investors. What do you need to know?
One of the objectives of Crowdfunding Regulation (Regulation (EU) 2020/1503, after that the “Regulation“) is to ensure adequate protection of different categories of investors participating in crowdfunding projects. The safeguards set out in the Regulation are based on the principle of distinguishing between sophisticated and non-sophisticated investors and setting different levels of investor protection for each of those categories.

The Regulation lays down, inter alia, the following safeguards:

– pre-contractual reflection period for non-sophisticated investor. Crowdfunding service providers must determine the pre-contractual reflection period for each crowdfunding project.

During such period a prospective non-sophisticated investor may revoke his offer to invest or expression of interest in the crowdfunding offer at any time. Such revocation may be carried out without giving a reason and without incurring a penalty for the investor. This safeguard measure is intended to avoid situations when a prospective non-sophisticated investor, by accepting a crowdfunding offer, thereby also accepts an offer to enter into a legally binding contract without any possibility of retraction within an adequate period of time.

The pre-contractual reflection period imposes additional obligations on crowdfunding service providers, such as the establishment of a pre-contractual reflection period, the obligation to inform investors about its beginning, duration, and revocation measures etc.

– key investment information sheetIn order for the investors to be able to take an informed decision to invest in a particular crowdfunding project, the Regulation sets out an additional requirement for crowdfunding service providers. Service providers must have a clear, correct, and complete key investment information sheet.

The Regulation states that with this sheet, the service providers should explicitly warn the investors about the investment risks, and that the content of the document itself should consist of: information on project owners, investors’ rights and fees, features and risks associated with project owners, activities of the project owners, services or products offered by them, etc.

– measures to be taken when the investment of non-sophisticated investor exceeds EUR 1 000 or 5 % of that investor’s net worth. Each time before a non-sophisticated investor accepts an individual crowdfunding offer thereby investing an amount that exceeds the higher of either EUR 1 000 or 5 % of that investor’s net worth, the Regulation lays down a list of specific additional measures for the crowdfunding service providers.

It is required in cases as such for the crowdfunding service provider to ensure that a non-sophisticated investor receives a risk warning, provides an explicit consent to the crowdfunding service provider for such an investment and proves to the crowdfunding service provider that the investor understands the investment and risks associated to it.

In addition to the measures described above, the Regulation provides some additional updates to the safeguarding measures already available in the national legal acts of the EU countries. Therefore, it is important to have in mind that the investor protection aspects play a key role in the updates that already operating crowdfunding service providers must perform during the transition period.

RESPONSE reminds that Lithuanian crowdfunding service providers, that are already authorized by the Bank of Lithuania under national legislation, may continue to operate under national legislation only until 10 November 2022. From that date an authorization under the Regulation is mandatory.

Should you have any questions regarding the Regulation or if you wish to be authorized in accordance with the Regulation’s requirements, please consult with the legal professionals of RESPONSE.


Kristupas Bagdonavičius

Andrius Karmonas

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