ECSP and the new investment process for the unsophisticated

ECSP and the new investment process for the unsophisticated

07 November 2023






The new European ECSP regulation introduces significant changes from the Italian regulations that have governed the sector for the past 10 years. After delving into how it changes the classification of investor types, the European regulation aims to provide greater transparency and protection towards the investor. To this end, a new investor profiling procedure is introduced through two tools: a knowledge test and a simulation of the ability to bear losses . Finally, the new post-investment right of reflection is also added.

What is the knowledge verification test for unsophisticated investors

The investment procedure remains simple and accessible to all. Investors can continue to browse Mamacrowd, browse investment opportunities, and choose and invest in the projects they find most interesting with greater awareness and transparency.

Before completing the investment transaction, as of November 10, every unsophisticated investor, on his or her first investment, will have to take a knowledge verification test (replacing the previous MIFID appropriateness check). The multiple-choice questions included in the verification cover experience, investment objectives, financial situation, as well as the investor's understanding of the risks associated with investing in general and equity investments on the platform. This innovation allows the investor to test whether and which crowdfunding services offered by the platform are appropriate for him or her. The test is to be repeated every 2 years.

Appropriate or inappropriate sophisticated investor

In real time, the platform returns the result: appropriate and inappropriate. In the first case, the investor has demonstrated sufficient understanding of the risks and operation of equity crowdfunding and can continue on the path by taking responsibility for investing without limitation on the amount.

If not appropriate, because he/she has not shown adequate understanding in financial matters, the user can continue with the investment but with limitations on the amount to be invested.

What is simulation of the ability to sustain losses

Whether appropriate or inappropriate, the unsophisticated investor is required to perform a second step of verification: loss simulation. The platform provides unsophisticated investors with a simulator that allows them to enter their net worth data and calculate their ability to sustain any losses from the investment, a capacity calculated as 10 percent of their net worth. It is possible to update the simulation every year.

The purpose here is to allow investors to quantify the maximum amount of losses that, based on their net worth, they would be able to face without exposing themselves to excessive financial consequences.

For each project, the investor's so-called investment threshold will be calculated, and that is the greater amount between €1K and 5 percent of his or her net worth. If the investor has the appropriate profile he/she can proceed with the investment, under his/her own responsibility without any limitation on the amount; while if he/she has the inappropriate profile he/she can only invest below the indicated threshold during the investment process.

Reflection vs withdrawal

There is also something new on the rights front: the right of reflection , which replaces the right of withdrawal. The investor will be able to withdraw from the investment within four calendar days of joining and no longer within seven days, as per the previous provision.

Transparency and simplicity in equity crowdfunding

As we have seen, the investment procedure for unsophisticated investors undergoes minor changes. Mamacrowd has worked to make these changes simple and accessible to the investor community.

Transparency and innovation have always been values that guide Mamacrowd's work, including in the choice of projects promoted from 2016 to the present.

Take a look at the startups, SMEs, and real estate projects we have led to success in recent years.


Warnings pursuant to Article 19(2)
crowdfunding services provided by Mamacrowd are not covered by the Deposit Guarantee Scheme established in accordance with Directive 2014/49/EU*; securities and instruments eligible for crowdfunding purposes that can be acquired through this crowdfunding platform are not covered by the Investor Compensation Scheme established in accordance with Directive 97/9/EC**.
* Directive 2014/49/EU of the European Parliament and of the Council on Deposit Guarantee Schemes.
** Directive 97/9/EC of the European Parliament and of the Council on investor-compensation schemes.


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