Non-experienced investor
What are they?
In the context of crowdfunding regulated by Regulation (EU) 2020/1503, there’s a distinction between experienced and non-experienced investors, in order to provide appropriate levels of protection for each group. Non-experienced investors are those who don’t meet the financial or experience-based criteria required to be considered experienced. This category usually includes retail or individual investors who might not have deep knowledge of financial markets or the financial means to take on high levels of risk.
Because non-experienced investors may be less familiar with the risks involved in crowdfunding platforms, the regulation sets out a series of specific protective measures for them. These are designed to ensure that these investors fully understand the risks and features of the investments they make, by giving them clear, appropriate information to help them make informed decisions.
Key aspects to consider
- Initial knowledge test and loss simulation: Before a crowdfunding service provider accepts an investment from a non-experienced investor, they must assess whether the investor has the experience and knowledge to understand the associated risks. They also need to run a simulation to see if the investor has the capacity to absorb financial losses.
- Pre-contractual reflection period: Non-experienced investors have the right to a reflection period of at least four calendar days during which they can withdraw their investment offer without any penalty.
- Explicit risk warnings: If, after the initial assessment, it turns out that the crowdfunding services are not suitable for a non-experienced investor, the provider must clearly warn them. Even after receiving the warning, the investor can still choose to proceed with the investment—acknowledging that they’ve received and understood the warning.
- Recommended investment limits: It’s recommended that non-experienced investors don’t invest more than €1,000 or 5% of their net worth in a single crowdfunding project. That said, investors are free to put in more if they wish.
Being classified as a non-experienced investor under Regulation (EU) 2020/1503 comes with a range of safeguards meant to protect investors who have less experience or financial capacity in the crowdfunding space. These rules are there to make sure these investors are fully aware of the risks and details of what they’re investing in. But at the same time, these protections might come with certain limitations or extra steps compared to experienced investors. So it’s really important for investors to understand their classification and what it means when using crowdfunding platforms.