Last month the official period for submitting comments in response to the SEC’s proposed rules for crowdfunding closed. On that date, the Commission received a raft of responses including one from the North American Securities Administrators Association ("NASAA"), which represents state-level securities regulators.
The NASAA voiced a number of concerns related to investor protection. For example, it objected to the proposal’s provision which would allow issuers to raise $1 million through Regulation Crowdfunding while also raising funds via Rule 506 of the Securities Act.
Others, including SEC Commissioner Kara Stein, worry that the proposal would allow too many people to put at risk too much of their income. See Stein Remarks.
As Entrepreneur reported, other commenters believed that the expectations placed on the funding portals through which crowdfunding offerings would be conducted were burdensome and unrealistic. It cited the comment letter of SeedInvest which noted that the proposal puts funding portals "between a rock and a hard place. On the one hand, they are prohibited from curating deals or giving investment recommendations and on the other hand, the funding portal, and each of their directors and officers personally, are deemed to be ‘issuers’ and therefore take responsibility (and liability) of the statements of every issuer."
The U.S. is not alone in wrestling with crowdfunding. Last week, the U.K.’s Financial Conduct Authority published new rules to govern loan-based crowdfunding and amended rules for securities-based crowdfunding. See FCA Policy Statement. The loan-based rules focus on consumer protection issues and require, for example, that the firms running the loan-based platforms be able to continue collection of loan repayments even if the platform gets into difficulties.
The securities-based crowdfunding rules address investor protection issues by limiting the amount any individual can invest to 10 per cent of available assets. Those who receive advice or have relevant knowledge and experience can invest more. The rules will be effective April 1, 2014.
The International Organization of Securities Commissions has also addressed crowdfunding. It published a global overview of the crowdfunding industry, summarizing the types of crowdfunding employed, the risks and rewards of crowdfunding, and current crowdfunding rules and trends.