Product update: New measures to enhance investors’ protection
Rōnin Team on ianuarie 31st, 2023 / Product Updates / 5 min read
We’ve built Rōnin to open access to startup investments for everyone. One of our core beliefs is that anyone can be an investor and support the business they believe in. That includes loyal clients, community members or simply true believers in a company’s mission, most of whom are probably inexperienced investors. And we want to do this by the book, ensuring a transparent, compliant, safe & easy process for all the parties involved.
When it comes to safety & compliance, investor’s protection is one of our main golden rules. To ensure adequate protection for all of our investors as they participate in crowdfunding campaigns, we have introduced appropriate protection measures for non-sophisticated investors.
But first, what makes an investor sophisticated or non-sophisticated?
A sophisticated investor is a person with in-depth knowledge in investment and expertise in the market. He is aware of the risks associated with investments and has significant financial resources to bear those risks without exposing themselves to excessive financial consequences.
A non-sophisticated investor, on the other hand, is not particularly specialised in investments. He’s either new to investing or not very knowledgeable and usually invests small amounts of money. They are called retail or everyday investors and do not meet the requirements of a sophisticated investor.
How do we protect the everyday, non-sophisticated investors?
1. Investors’ knowledge test
We assess our investors’ experience and knowledge to ensure that prospective non-sophisticated investors understand the level of risk associated with crowdfunding investments. This helps us alert investors that the investment opportunities available on the platform may not be appropriate for them and there is a risk of loss of investment. The assessment is reperformed every two years.
If their knowledge, expertise, skills, investment objectives, financial status, or understanding of the risks may be inadequate or insufficient for their use of our services, they must expressly acknowledge the risks they are taking when they invest in a crowdfunding project. In order to maintain a high level of investor protection and given that an absence of such acknowledgement indicates a potential lack of understanding of the risks involved, we only accept investments from non-sophisticated investors that have expressly acknowledged that they have received and understood those warnings.
2. Simulation of the ability to bear loss
In addition to the knowledge test, to assess the appropriateness of our investment offerings for any particular non-sophisticated investor, once a year we carry out a simulation of his/her ability to bear loss. According to the provisions of the Regulation, it is calculated as 10% of net worth. The calculation takes into account both the investor’s income and assets that can be easily and swiftly converted into cash, including financial investments and cash deposits, but excluding real estate properties and also in pension schemes. Investor’s existing and future commitments are deducted from assets and income.
Such simulation of investor’s ability to bear loss is necessary because of the risks inherent in crowdfunding investments, which may result in losing a substantial part of the invested amount or even the entirety of it by an investor. Therefore, non-sophisticated investors should avoid overexposure to them and take into consideration the amount of investment that is recommended to not be exceeded.
3. Investment amount risk warning
As a non-sophisticated Investor, if the investment amount is higher than 1000 Euro or 5% of Net Capital, an additional risk warning message is displayed and the investor needs to consent to it to move further with the investment. Only those investors who have expressly acknowledged that they understand the risks may continue with the investment process.
- Pre-contractual reflection period
An additional investor protection mechanism is the pre-contractual reflection period, during which a non-sophisticated investor may revoke his/her offer to invest or expression of interest in the crowdfunding offer without any restrictions.
In line with the provisions of the Regulation, four calendar days are given to investors during which they may reflect on their previously expressed intention to make an investment and to revoke it.
- Key investment information sheet
Because investors decide on investment in a particular crowdfunding campaign on the basis of information available to them, we’ve always offered clear, accurate and comprehensible information on the business for which funding was sought, in a Key Investment Information Sheet drawn-up by the project owner. This includes warnings about investment risks, a possible failure to receive any return on investment and the risk of partial or entire loss of the money invested.
How can an investor be treated as a sophisticated investor once evaluated as a non-Sophisticated one?
If our investors think they respect the criteria to be considered sophisticated, they can always send a request to [email protected], adding the standard form provided on the platform filled in with their details. However, for those considered sophisticated investors upon request, we reassess their status every two years.
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