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Singapore – MAS Consults On Proposals For Securities-Based Crowdfunding.

27 February, 2015

 

Legal News & Analysis – Asia Pacific – Singapore  Capital Markets

 

The Monetary Authority of Singapore (“MAS”) has issued a consultation paper setting out proposals and clarifications on securities-based crowdfunding (“SCF”). The consultation paper does not deal with other types of crowdfunding, including lending-based crowdfunding.


For a start, MAS is proposing to facilitate SCF offers only to accredited investors (“AI”) and institutional investors (“II”). AIs generally refer to high net worth individuals with net personal assets in excess of SGD 2m or whose income in the preceding 12 months is not less than SGD 300k, while IIs generally refer to financial institutions and other bodies in Singapore described under the Securities and Futures Act (“SFA”).


What Is Crowdfunding?


Crowdfunding is a way of raising finance for a specific project or business proposal by asking a large number of people each for a small amount of money, typically via an online platform. However, where crowdfunding involves the offer of securities in the form of debenture or shares, i.e., SCF, it will be subject to securities regulation. While crowdfunding provides an alternative source of private financing for startups and small and medium enterprises (“SME”) in Singapore, there are high risks associated with such investments, e.g., loss of capital, lack of liquidity, fraud and platform closure or failure.


Proposed Regulatory Approach


In Singapore, 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. Also, intermediaries which deal in securities are required to hold a capital services markets (“CMS”) licence, unless exempted. Such intermediaries may also be deemed to be advising on other regulated activities, such as corporate finance, if they are advising the offeror of securities or providing financial advisory services under the Financial Advisors Act if they provide financial advice to investors on the securities.


MAS is of the view that retail investors may not fully appreciate the high risks inherent in SCF investments, even if risk warnings are disclosed. On the other hand, it is likely that AIs and IIs will have more resources and experience in investing in SMEs and start-ups.
MAS is therefore proposing that at first instance, given the nascent stage of the SCF industry, to only facilitate SCF offers to AIs and IIs. Retail investors may still participate in other forms of crowdfunding, e.g., donation-based crowdfunding and reward-based crowdfunding. MAS will in the meantime be monitoring developments in other jurisdictions in relation to extending SCF to retail investors.


Licensing Requirements


MAS has received feedback from intermediaries interested in operating SCF platforms that they face difficulties meeting some of the existing requirements under the SFA, such as the financial requirements on minimum base capital and the lodgement of a security deposit with MAS.


Lower Base Capital Requirements


Currently, under the Securities and Futures (Financial and Margin Requirements for Holders of Capital Market Services Licences) Regulations, intermediaries that require a CMS licence for dealing in securities (“Dealing Licensees”), do not carry any customer positions in securities, margins or accounts in their own books, do not accept monies or assets from any customer, and deal in securities only with AIs are required to maintain a base capital of SGD 250k.

 

MAS is now proposing to ease the base capital requirements for such Dealing Licencees from the current SGD 250k to SGD 50k.


Removal Of Requirement To Lodge Security Deposit


The Securities and Futures (Licensing and Conduct of Business) Regulations currently prescribe that Dealing Licensees are required to lodge a security deposit of SGD 100k with MAS. This is for the purpose of compensating retail investors who suffer pecuniary losses as a result of defalcation by the Dealing Licensee or its agents.


However, such a scenario will not arise where a Dealing Licensee does not handle, hold or accept customer monies, assets or positions. MAS therefore proposes to remove the requirement for Dealing Licensees to lodge the SGD 100k security deposit with MAS.


Clarification On Advertising Restrictions


Offerors may rely on the exemptions under sections 274 and 275 of the SFA, to make offers of securities to AIs or IIs through SCF without a prospectus. To ensure that offers made in reliance of these exemptions are limited in scope and reach, offers to AIs are subject to specified conditions, including a restriction on any advertisement on the offer (“Advertising Restriction”).


In response to queries on whether the publication of information on the start-up or SME raising funds and the details of the offer and securities on an SCF platform would be considered a breach of the Advertising Restriction, MAS has clarified that the Advertising Restriction does not prohibit SCF platforms from advertising their platforms to the general public.


Such advertisements may include general information about the platforms and its business model, as long as they do not include any information on specific offers that may be available on the SCF platform.


Conclusion & Resources


MAS is now seeking feedback on the following:


1. The proposed regulatory approach to facilitate SCF for AIs and IIs in the first instance; and


2. The proposals to lower the base capital requirement to SGD 50k and removal of the requirement to maintain a security deposit of SGD 100k with MAS.
The closing date for feedback is 18 March 2015.


Please click on the link below to read the Consultation Paper in detail:

 

MAS Consultation Paper on Facilitating Securities-based Crowdfunding

 

Rajah & Tann

 

For further information, please contact:

 

Regina Liew, Partner, Rajah & Tann
regina.liew@rajahtann.com

 

Larry Lim, Partner, Rajah & Tann
larry.lim@rajahtann.com


Ruth Lin, Partner, Rajah & Tann
ruth.lin@rajahtann.com

 

Rajah & Tann Capital Markets Practice Profile in Singapore

 

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