HOW DOES THE LAW PROTECT THE CROWD? ABOUT CROWD INVESTOR PROTECTION MECHANISMS INTRODUCED BY THE EU REGULATION 2020/1503

Crowdfunding services provide an unconstrained pool of investors who all receive investment proposals at the same time, and they mainly entail the raising of capital from individual people, including those who are not high-net-worth individuals. Crowdfunding allows a company to raise capital without conducting a formal public offering procedure. Equity crowdfunding, as a relatively new form of raising capital for business ventures, raises many doubts in the field of corporate governance. The fundamental advantage of crowdfunding from an entrepreneur’s perspective is that the founder of the company does not have to cede as many rights to crowd investors as he or she would if the investor were a venture capital or private equity fund. As a result, a crowd investor is a passive investor by definition. To unify rules among Member States and create mechanisms of protection for this completely new type of investor, the Regulation (EU) 2020/1503 was enacted. This paper aims to analyze the main investor protection mechanisms included in Regulation 2020/1503 and compare them with MIFID II provisions, which constitute the main protection mechanisms for traditional retail investors. This analysis enables an answer to whether crowd investors are offered a higher level of protection than traditional retail investors. The author of this paper claims that protection mechanisms introduced by Regulation 2020/1503 regarding non-sophisticated investors are an example of increasing paternalism in the financial markets. However, the characteristic of the equity crowdfunding market justifies a higher-level paternalism and intervention in order to protect non-sophisticated investors