In an effort to ease access for Small and Medium Enterprises (SMEs), The Monetary Authority of Singapore (MAS), the country’s central bank and financial regulatory authority, announced yesterday two structural changes in how the agency will approach securities-based crowdfunding.
First, the MAS will allow securities-crowdfunding companies to rely on existing regulatory framework for small offers.
To do so, the central bank will simplify the necessary qualifications that allow companies raising less than S$5 million (US$3.7 million) within 12 months to proceed without issuing a prospectus.
Crowdfunding companies will be required to document and disclose the risks of investing in the platform and receive documented acknowledgement that the investors have read and understood the exposures. This rule applies to both retail (non-professionals) and institutional investors.
The change is in relation to section 272A of the Securities and Futures Act (Cap. 289).
Second, the MAS will reduce the financial threshold for crowdfunding companies that want to raise funds exclusively through accredited and institutional investors.
The base capital and minimum operational risk requirements will be reduced from S$250,000 (US$185,000) to S$50,000 (US$37,000). Additionally, the S$100,000 (US$74,000) security deposit obligation will be waived.
The platforms must still act as middleman because the rules changes require companies to refrain from handling customer’s monies, assets, positions and they cannot act as a principal against clients.
“This will allow more qualifying SCF platform operators to operate in this restricted space and takes into account the limited systemic and business conduct risks posed by such intermediaries,” the release from the MAS read.
Speaking on the rule changes, Lee Boon Ngiap, the Assistant Managing Director of Capital Markets at MAS said,
“Securities-based crowdfunding (SCF) is a useful addition to our financing landscape. At the same time, SCF investments can be quite risky. The measures we are implementing seek to strike the right balance between improving access to SCF for start-ups and SMEs and protecting investor interests.”
To consider the rule changes as a full support of securities-based crowdfunding from the MAS would be misguided. In a report released after the public consultation, the agency’s response explicitly stated it does not intend to remove the regulatory safeguards that apply to retail investors.
“Given the high risks inherent in SCF investments and that SCF is still very much a nascent industry globally, retail investors may not have the investment experience or expertise to fully appreciate the risks involved in SCF investments,” reads paragraph 2.4.
FundedHere, Singapore’s only equity crowdfunding platform approved of a Capital Markets Services License (a regulatory authorisation covering various securities and futures-trading business models), issued a statement to e27 embracing the change.
“It is very significant that MAS has simplified and liberalised investor access to crowdfunding and crowdlending. Apart from sophisticated or accredited investors, the general public can also participate in crowdfunding,” said Michael Tee, CEO of FundedHere, in the statement.
He went on to explain the lower barrier to entry is more in line with the spirit and promise of crowdfunding — which is built on the ideal of easing access to capital for the average person.
Lee went on to welcome the fact the new rules clarify certain ambiguities in the industry that create headaches and divert resources towards legal council.
“It is now clear that crowdlending platforms need to be licensed. This will level the playing field, protect investors and will ensure growth of this alternative avenue of financing over the long run,” he said.