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25 August 2015

A. Current PositionCrowdfunding typically involves the use of an online platform to raise funds via one of the following means:1) Community Modela. Donation-based crowdfundingb. Reward-based crowdfunding2) Financial Return Modela. Lending-based crowdfundingb. Equity-based crowdfundingThe Community Model of crowdfunding does not involve the offer of securities or the prospect of financial returns and is, therefore, not subject to securities regulation in Singapore.On the other hand, the Financial Return Model of crowdfunding might involve the offer of securities in the form of debentures or shares. This is known as securities-based crowdfunding (“SCF”), and is subject to securities regulation in Singapore under the Securities and Futures Act (Cap. 289) (the “SFA”). These regulations affect both the operator of the online SCF platform (the “Platform Operator”) and the corporation or individual that issues the securities.a. Licensing requirements of the Platform OperatorUnder the SFA, a Capital Markets Services Licence is needed in order to engage in “dealing in securities” or “advising on corporate finance”. Thus, a Platform Operator that offers or induces any person to enter into any agreement to acquire or subscribe for securities, or that offers advice to the individual or corporation making an offer of securities, would be required to obtain a Capital Markets Services Licence, unless so exempted.In addition, a Platform Operator that provides financial advice to investors who wish to purchase the securities may be deemed to be providing financial advisory services under the Financial Advisers Act (Cap. 110), and be required to obtain a financial adviser’s licence.b. Prospectus requirements of the issuerUnder the SFA, entities that make an offer of securities to investors in Singapore are required to lodge and register a prospectus with the Monetary Authority of Singapore (the “MAS”), unless so exempted.These exemptions include personal offers of securities which do not exceed S$5 million within any period of 12 months, offers made to no more than 50 persons within any period of 12 months, and offers which are restricted to “institutional investors” or “accredited investors”.B. What’s ComingMAS is proposing measures to facilitate SCF which involves the offer of securities to accredited investors and institutional investors, as it is of the opinion that these investors are likely to have greater resources and experience investing in Small and Medium Enterprises (“SMEs”) and start-ups, and would thus be in a better position to make investment decisions in light of the inherent risks involved with SCF. In this regard, SMEs and start-ups can continue to raise funds from the public through the Community Model of crowdfunding. MAS will continue to monitor the developments in other jurisdictions in considering whether to make SCF available to retail investors.a. Proposed lowering of financial requirements to obtain a Capital Markets Services licenceMAS has proposed to lower the base capital requirement and remove the security deposit requirement to obtain a Capital Markets Services Licence for intermediaries that do not hold, handle or accept customer monies, assets, or positions and do not act as principals in transactions with investors.The current base capital requirement is S$250,000 for intermediaries dealing with accredited investors and S$500,000 for intermediaries dealing with retail investors. In this regard, MAS has proposed to lower the minimum base capital requirement to $50,000.It is apposite to note that if a Platform Operator conducts more than one regulated activity under the SFA, the higher or the highest (if more than two activities) of the base capital requirements would apply.MAS has also proposed to remove entirely the current requirement to lodge a security deposit of $100,000 to compensate investors for pecuniary loss arising from any defalcation of the licence holder.b. Clarification on scope of advertising restrictionsThe exemptions to the prospectus requirements are subject to the requirement that “none of the offers are accompanied by an advertisement making an offer or calling attention to the offer or intended offer” (the “Advertising Restriction”).In this regard, MAS has clarified that the publication of information on the individual or corporation that wishes to raise funds, or the details of the offer of securities, on a SCF platform that restricts access to such information to registered users, would not constitute a breach of the Advertising Restriction. This is subject to the Platform Operator having first conducted due diligence to confirm that investors who have access to the SCF platform are within the scope of the relevant prospectus exemption.MAS has also clarified that a SCF Platform Operator is not prohibited from advertising to the general public the existence of its platform. However, such advertisement must not include any information on the offers available on the platform.C. ConclusionMAS has taken the first steps to facilitate the raising of funds via securities-based crowdfunding from accredited investors and institutional investors. It is hoped that the removal of regulatory hurdles would lead to a growth in crowdfunding activities in Singapore.P.Balachandran & Raymond Ting, Robert Wang & Woo LLP,Singapore

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