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Singapore – Proposed Rules For Securities-Based Crowdfunding

24 February, 2015

 

Legal News & Analysis – Asia Pacific – Singapore  Capital Markets

 

The Monetary Authority of Singapore (MAS) has published a consultation paper looking at how to allow businesses to raise finance through securities-based crowdfunding (SCF).

 

There has been increasing interest in crowdfunding as a funding model in recent years, MAS said in a statement, with startups and small to medium enterprises are looking for sources of finance, and crowdsourcing platform operators are looking for opportunities.

 

There are two main types of crowdfunding, MAS said: community crowdfunding, where funds are raised through donation- and reward-based offerings, and financial return crowdfunding. Community crowdfunding is already popular in Singapore, where it is used to raise funds for product development, and is not subject to securities regulation, MAS said. Where a financial return is expected, however, regulation is needed.

 

“MAS has been studying how to facilitate SCF as it can potentially offer an alternative source of funding 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,” MAS said.

 

MAS proposes to ease the current financial requirements for intermediaries. Operators who do not handle or hold customer money, assets or positions, and do not act as principal in transactions with customers, will be allowed to apply for licences. This will allow operators with lower financial resources to enter the market, MAS said.

 

MAS has also clarified the rules on advertising crowdfunding platforms, saying that operators can advertise so long as they do not refer to any specific SCF offer.

 

Bryan Tan of Pinsent Masons MPillay, the Singapore joint law venture partner of Pinsent Masons,  described MAS’s approach as “a cautious one, protecting the man in the street by only allowing accredited investors to invest in this way.”

 

Mr Lee Boon Ngiap, assistant managing director of capital markets for 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.”

 

Pinsent Msaons MPillay

 

For further information, please contact:

 

Michael Lewis, Partner, Pinsent Masons

michael.lewis@pinsentmasons.com

 

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