Friday, 10 June 2016

MAS improves crowdfunding access for start-ups and SMEs

New licensing regime set for crowdfunding platforms
MAS move comes after public consultations; rules include safeguards for retail investors
By Yasmine Yahya, Assistant Business Editor, The Straits Times, 9 Jun 2016

Crowdfunding platforms that deal with debt and equity have to obtain a licence to operate, said regulators as they set policy on the industry for the first time.

The move by the Monetary Authority of Singapore yesterday clarifies a grey area and comes at the end of a public consultation process that took over a year.

It also comes as government agencies grapple with how to regulate emerging tech-related players such as Uber and Airbnb.

Crowdfunding players said that the MAS statement will help to lend credibility to the sector while safeguarding investors.

The new licensing rule will have a significant impact on several lending-based crowdfunding platforms that already operate here. These allow retail investors to contribute towards raising loans for small and medium-sized enterprises or start-ups and receive interest payments in return.

They include players such as Funding Societies, MoolahSense and Capital Match.

Such firms will now have to apply for a capital markets services licence and, because they deal with retail investors, have to set aside a capital base of $500,000.

The same would apply to a crowdfunding platform that wants to help companies sell equities to retail investors.

An MAS spokesman said the regime ensures that only fit and proper persons are allowed to provide financial services. A licensee "would also be required to comply with business conduct rules that seek to protect the interests of investors, such as ensuring proper segregation of customers' monies and proper record-keeping of... transactions", he added.

MoolahSense founder Lawrence Yong said: "We always felt regulation was inevitable, in order for crowdfunding to enter the mainstream and I do think (what MAS has proposed) is fair."

Even as it brought these players into the fold, MAS also eased some existing rules.

Platforms that want to tap only accredited and institutional investors will now need to have a base capital requirement of $50,000, down from $250,000 previously.

They will also not need to put up a $100,000 security deposit.

There was also a loosening of the checks that crowdfunding firms would have to make on investors, including retail investors.

However, they will now have to issue alerts to investors about the risks involved in securities crowdfunding, and investors will have to acknowledge these risks before making an investment.

Mr Michael Tee, the chief executive of FundedHere, said the MAS moves simplified and liberalised investor access to crowdfunding.

Mr David Gerald, president of the Securities Investors Association of Singapore, agreed, but added investors should be aware that crowdfunding is a highly risky investment.

"They must understand that they can lose 100 per cent of their investment, so I would say, go slow," he said.

Watchful eye on crowdfunding
By Yasmine Yahya, Assistant Business Editor, The Straits Times, 10 Jun 2016

As crowdfunding exploded onto the Singapore scene in the past year or so, increasing numbers of investors have piled in, attracted by the potential of earning high returns for relatively low sums of capital.

Lending-based crowdfunding players have become popular among retail investors, who can contribute as little as $1,000 to a loan for a small and medium-sized enterprise (SME) and get potential returns of close to 20 per cent over the next 12 months. These days, it is not unusual to hear of SMEs raising loans of more than $100,000 in under an hour, thanks to the power of the crowd.

The Monetary Authority of Singapore's move on Wednesday to bring such crowdfunding players into its licensing regime sends a strong signal that despite the relatively small capital outlays investors put in, this is an area that warrants the regulator's keen eye, especially as the financial technology scene is only going to grow bigger from here on.

Under the regime, crowdfunding firms that want to allow retail investors to participate on their platform must set aside a base capital of $500,000.

This applies to crowdfunding platforms that deal in offering securities, such as raising loans or selling shares, on behalf of other companies.

This sets a high barrier to entry, and as MAS noted, the licensing application process will help to ensure only "fit and proper persons" are allowed to provide financial services here.

The licence will also require the firm to comply with rules such as ensuring proper segregation of customer funds and record-keeping of transactions.

For investors, being able to check which operators are licensed serves as a quick and easy way of determining which ones have at least undergone the approval process and are playing by MAS' rules.

Another new rule, requiring operators to remind investors of the risks of participating in securities-based crowdfunding and getting investors to acknowledge these risks before putting in funds, will also ensure that cooler heads prevail, even as the crowdfunding scene picks up heat.

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