SEC issues rules on crowdfunding
Published Jul 9, 2019 12:00 am
By James A. Loyola
The Securities and Exchange Commission (SEC) has issued Rules and Regulations Governing Crowdfunding (CF Rules) to allow startups and small and medium-sized enterprises (SMEs) greater access to capital while giving the public more investment options.
Crowdfunding is a fundraising activity typically conducted through an online platform and usually for startups and SMEs.
SEC Chairperson Emilio B. Aquino said“the Commission hopes to support recent financial innovations on providing easier access to finance especially for smaller business startups or ventures while ensuring the integrity and fairness of financial systems and the protection of investors.”
Generally, there are four forms of crowdfunding:donation-based crowdfunding, reward-based crowdfunding, lending-based crowdfunding, and equity-based crowdfunding.
Reward-based and donation-based crowdfunding are two prevalent forms of community crowdfunding which are not subject to securities regulation as they do not involve offers of securities or the prospect of financial returns.
On the other hand, the financial return model includes lending-based and equity-based crowdfunding. Considering it involves the offer of securities in the form of debentures or shares, the financial return model is subject to securities regulation.
The CF Rules primarily govern the operation and use of equity- and lending-based crowdfunding by registered persons such as brokers, investment houses, funding portal, and issuers and investors who participate in such fundraising activities online.
Crowdfunding through means other than online electronic platform is not within the coverage of the CF Rules; hence, the usual requirements under the SRC shall apply.
Under the new rules, CF transactions must be done through registered CF intermediaries, the aggregate amount of securities that can be offered and sold by issuer within a 12-month period shall be limited to P10 million when offered and sold to any investor; and P50 million when offered and sold to qualified investors.
There is also a limit on investments of investors: during the 12-month period:a maximum of 5 percent of total income per year for retail investors with annual income of up to P2 million, and up to 10 percent for those earnings more than P2 million a year. Qualified investors are not subject to the limits.
Crowdfunding is a fundraising activity typically conducted through an online platform and usually for startups and SMEs.
SEC Chairperson Emilio B. Aquino said“the Commission hopes to support recent financial innovations on providing easier access to finance especially for smaller business startups or ventures while ensuring the integrity and fairness of financial systems and the protection of investors.”
Generally, there are four forms of crowdfunding:donation-based crowdfunding, reward-based crowdfunding, lending-based crowdfunding, and equity-based crowdfunding.
Reward-based and donation-based crowdfunding are two prevalent forms of community crowdfunding which are not subject to securities regulation as they do not involve offers of securities or the prospect of financial returns.
On the other hand, the financial return model includes lending-based and equity-based crowdfunding. Considering it involves the offer of securities in the form of debentures or shares, the financial return model is subject to securities regulation.
The CF Rules primarily govern the operation and use of equity- and lending-based crowdfunding by registered persons such as brokers, investment houses, funding portal, and issuers and investors who participate in such fundraising activities online.
Crowdfunding through means other than online electronic platform is not within the coverage of the CF Rules; hence, the usual requirements under the SRC shall apply.
Under the new rules, CF transactions must be done through registered CF intermediaries, the aggregate amount of securities that can be offered and sold by issuer within a 12-month period shall be limited to P10 million when offered and sold to any investor; and P50 million when offered and sold to qualified investors.
There is also a limit on investments of investors: during the 12-month period:a maximum of 5 percent of total income per year for retail investors with annual income of up to P2 million, and up to 10 percent for those earnings more than P2 million a year. Qualified investors are not subject to the limits.