Various types of crowd funding are used for different purposes. Reward and donation based crowdfunding are two prevalent forms of social and community crowdfunding which are not subject to regulations in Singapore. Lending based and securities issue based crowdfunding are subject to securities regulations and the central bank had the opportunity to inject a dose of clarity on such platforms recently.
The importance of a balance between facilitating the development of lending and securities funding platforms and ensuring sufficient safeguards for investors is recognised and a regulatory overkill would be ominous for the fledging industry.
Consequentially, a distinct approach is now adopted for two broad classes of investors: Retail investors are deemed to be more in need of protection than accredited or institutional investors. Therefore, while the proposed new legislation will require all such platforms to now apply for and hold capital markets services licenses, the requirements of such licenses had been adjusted. The platforms that market to accredited and institutional investors will now only require a capital base of S$50,000 from the initial S$250,0001. The requirement of a deposit sum of S$100,000 is also removed. For platforms targeting retail investors, the status quo of capital bases of S$500,000 remain, amongst various other conditions.
In addition, the rules on prospectus requirements for any fund raising through an equity based crowdfunding platform will be simplified to permit issuers raising less than S$5 million within any 12 months period to do so without having to issue a prospectus. As a counterbalance and a safeguard, the key risks of such investments must be disclosed and the investors’ acknowledgment of such risks must be obtained by the crowdfunding platforms from the investors.
These come at the end of a public consultation on the proposed legislation and are timely given the ominous signs of the beginning of such platform defaults in Singapore. Also, given the growth of funders in Singapore, include corporates, the oversights and clarifications are anticipated to nurture further confidence.