Regulation (EU) 2020/1503 of the European Parliament and of the CouncilShow full title

Article 21 U.K. Entry knowledge test and simulation of the ability to bear loss

1. Crowdfunding service providers shall, before giving prospective non-sophisticated investors full access to invest in crowdfunding projects on their crowdfunding platform, assess whether and which crowdfunding services offered are appropriate for the prospective non-sophisticated investors.

2. For the purposes of the assessment referred to in paragraph 1, crowdfunding service providers shall request information about the prospective non-sophisticated investor’s experience, investment objectives, financial situation and basic understanding of risks involved in investing in general and in investing in the types of investments offered on the crowdfunding platform, including information about:

(a) the prospective non-sophisticated investor’s past investments in transferable securities or past acquisitions of admitted instruments for crowdfunding purposes or loans, including in early or expansion stage businesses;

(b) the prospective non-sophisticated investor’s understanding of the risks involved in granting loans, investing in transferable securities or acquiring admitted instruments for crowdfunding purposes through a crowdfunding platform, and professional experience in relation to crowdfunding investments.

3. Crowdfunding service providers shall for each non-sophisticated investor review the assessment referred to in paragraph 1 every two years after the initial assessment made in accordance with that paragraph.

4. Where prospective non-sophisticated investors do not provide the information required pursuant to paragraph 2, or where crowdfunding service providers consider, on the basis of the information received under that paragraph, that the prospective non-sophisticated investors have insufficient knowledge, skills or experience, crowdfunding service providers shall inform those prospective non-sophisticated investors that the services offered on their crowdfunding platforms may be inappropriate for them and issue them a risk warning. That risk warning shall clearly state the risk of losing the entirety of the money invested. Prospective non-sophisticated investors shall expressly acknowledge that they have received and understood the warning issued by the crowdfunding service provider.

5. For the purposes of the assessment referred to in paragraph 1, crowdfunding service providers shall also require prospective non-sophisticated investors to simulate their ability to bear loss, calculated as 10 % of their net worth, based on the following information:

(a) regular income and total income, and whether the income is earned on a permanent or temporary basis;

(b) assets, including financial investments and any cash deposits, but excluding personal and investment property and pension funds;

(c) financial commitments, including regular, existing or future commitments.

6. Crowdfunding service providers shall, for each non-sophisticated investor, review the simulation referred to in paragraph 5 every year after the initial simulation made in accordance with that paragraph.

Prospective non-sophisticated investors and non-sophisticated investors shall not be prevented from investing in crowdfunding projects. The non-sophisticated investors shall acknowledge that they have received the results of the simulation referred to in paragraph 5.

7. Each time before a prospective non-sophisticated investor or 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 as calculated in accordance with paragraph 5, the crowdfunding service provider shall ensure that such investor:

(a) receives a risk warning;

(b) provides explicit consent to the crowdfunding service provider; and

(c) proves to the crowdfunding service provider that the investor understands the investment and its risks.

For the purposes of point (c) of the first subparagraph of this paragraph, the assessment referred to in paragraph 1 may be used as proof that the prospective non-sophisticated investor or non-sophisticated investor understands the investment and its risks.

8. ESMA shall, in close cooperation with EBA, develop draft regulatory technical standards to specify the arrangements necessary to:

(a) carry out the assessment referred to in paragraph 1;

(b) carry out the simulation referred to in paragraph 5;

(c) provide the information referred to in paragraphs 2 and 4.

When developing those draft regulatory technical standards, ESMA shall take into account the nature, scale and complexity of the crowdfunding services provided by the crowdfunding service provider.

ESMA shall submit those draft regulatory technical standards to the Commission by 10 November 2021.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.