MAS Sets Out Proposals for Securities-based Crowdfunding
Singapore, 16 February 2015… The Monetary Authority of Singapore (MAS) today published a consultation paper setting out proposals and clarifications to facilitate access by corporates to alternative sources of funding through securities-based crowdfunding.
2 In recent years, there has been increasing interest in crowdfunding from start-ups and small and medium enterprises (SMEs) as well as from potential securities-based crowdfunding platform operators. There are two broad models of crowdfunding – (1) community and (2) financial return. Donation-based and reward-based crowdfunding are two prevalent forms of community crowdfunding adopted in Singapore and other countries. These forms of crowdfunding do not involve the offer of securities or the prospect of financial returns and are therefore not subject to securities regulation. There are already several online platforms operating donation-based and reward-based crowdfunding that are accessible to the public in Singapore. Businesses in Singapore looking to raise funds for product development can do so today via such online platforms.
3 The financial return model includes lending-based and equity-based crowdfunding. Where such a model of crowdfunding involves the offer of securities in the form of debentures or shares (collectively, securities-based crowdfunding, or SCF), they are subject to securities regulation in most jurisdictions, including Singapore.
4 MAS has been studying how to facilitate SCF as it can potentially offer an alternative source of financing for start-ups and SMEs. There are, however, significant risks associated with SCF investments, which tend to have a high probability of capital loss and are more illiquid compared to traditional securities investment instruments. Globally, SCF is still at a nascent stage of development, and very few jurisdictions have implemented a regulatory framework for SCF.
5 As a start, MAS will facilitate SCF offers to accredited investors (AIs) and institutional investors (IIs) through the following initiatives:
(a) MAS proposes to ease the current financial requirements for intermediaries that deal in securities, so long as they do not handle or hold customer monies, assets or positions and do not act as principal in transactions with customers1. This will allow potential SCF platform operators with lower financial resources to apply for a licence to offer SCF investments.
(b) MAS clarifies that the advertising restriction2 for restricted offers made to AIs (that are exempted from the prospectus requirement) does not prohibit SCF platform operators from advertising their platforms, so long as reference is not made to any specific SCF offer listed on their platforms. This clarification will provide certainty to potential SCF platform operators on the manner in which they can publicise their business.
6 Mr Lee Boon Ngiap, Assistant Managing Director, Capital Markets, MAS, said, “These proposals seek to strike a balance between facilitating investments in start-ups and small businesses and ensuring that there are sufficient safeguards for investors. We look forward to feedback from investors and market participants on the proposals to promote a conducive and sustainable environment for securities-based crowdfunding in Singapore.”1 The minimum base capital requirement for such intermediaries would be lowered to $50,000, and they would not need to lodge a security deposit of $100,000 with MAS. The current base capital requirement is S$250,000 or S$500,000 if such intermediaries deal with AIs or retail investors respectively.
2 Any offer of securities is required to be made in or accompanied by a prospectus unless it qualifies for an exemption under Part XIII of the SFA. The SFA currently provides for an exemption for offers made to AIs without a prospectus. Under section 275, offers of securities to AIs are exempted from the prospectus requirement subject to certain specified conditions, including restrictions on advertising of the offers.