In the midst of growing interest from start-ups and small and medium enterprises (“SMEs”) in crowdfunding as a source of funding, the Monetary Authority of Singapore (the “MAS”) issued a Consultation Paper setting out proposals and clarifications relating to securities-based crowdfunding (“SCF”). The consultation exercise ended on 18 March 2015.
What is securities-based crowdfunding?
Essentially, SCF is a form of crowdfunding which involves the offer of securities. Where lending-based and equity-based crowdfunding involve an offer of securities in the form of debentures or shares, they are subject to securities regulation in most countries, including Singapore.
To begin, the MAS proposes to facilitate only SCF offers to accredited investors (“AIs”) and institutional investors (“IIs”).
An AI may be an individual or a corporation. An individual would be an AI if he has net personal assets exceeding S$2 million in value or an income of at least S$300,000 in the last 12 months. In the case of a corporation, it must have net assets in excess of S$10 million. IIs refer to banks, merchant banks, finance companies and other entities prescribed in the Securities and Futures Act (the “SFA”).
The MAS proposes to lower the base capital requirement and remove the security deposit requirement for intermediaries that deal in securities, including intermediaries operating an SCF platform, so long as they do not handle, hold or accept customer monies, assets, or positions and do not act as principal in transactions with investors.
Exemption from prospectus requirements
Start-ups and SMEs making an SCF offer can rely on the prospectus exemptions under sections 274 and 275 of the SFA to make offers of securities to AIs and IIs without a prospectus. Offers to AIs are subject to advertising restrictions to ensure that the offers are not subject to mass solicitation.
The MAS has received queries on whether the publication of information about the start-up or SME and the terms of the offer of securities (the “Relevant Statements”) on the SCF platform would be regarded as an “advertisement” and therefore, a breach of the advertising restrictions. The MAS clarifies as follows:
- As exempted offers are intended to be offers that are restricted in scope, these offers should not be subject to any mass solicitation, advertising or canvassing. Thus, publication of the Relevant Statements on an SCF platform that grants the general public unrestricted access to the Relevant Statements would be regarded as a breach of the advertising restrictions.
- If the operator of an SCF platform allows access to the Relevant Statements only to registered users, and the platform operator has conducted due diligence to confirm that investors who have access to the Platform are within the scope of the prospectus exemption (e.g. AIs), the publication of the Relevant Statements on the platform would not be regarded as a breach of the advertising restrictions.
The following materials are available from the MAS website www.mas.gov.sg: