Between investor protection and access to crowdfunding : the entry knowledge test and the simulation of the ability to bear loss (Art 21 and Annex II)

In this Chapter, we provide a commentary on Article 21 of the European Crowdfunding Service Providers for Business Regulation. This provision contains three separate but related measures: the entry knowledge test, the simulation of the ability to bear loss and the individual threshold against overexposure. After briefly outlining the background and rationale of Article 21, we first discuss the distinction between sophisticated and non-sophisticated investors, as the provision only applies when the latter invest in crowdfunding projects. We then offer a detailed analysis of the three substantive measures, describing the Level 1 requirements, Level 2 implementation and issues that remain unclear. Each time, we compare with similar client classification systems and assist-your-customer provisions in MiFID II, the ELTIF Regulation and the EuVECA Regulation, followed by a critical appraisal. We conclude with an overarching assessment of Article 21, discussing, among other things, its internal coherence and ability to effectively protect non-sophisticated investors.