MR. ANDREW MAK YEN-CHEN MS. DEBBIE TAN SUET HUI
Partner Legal Associate (Corporate Practice)
T: (65) 6322 2210 T: (65) 6322 2213
F: (65) 6534 0833 F: (65) 6534 0833
E: andrewmak@loopartners.com.sg E: debbietan@loopartners.com.sg
Loo & Partners LLP
143 Cecil Street, Level Ten, GB Building
Singapore 069542
www.loopartners.com.sg
The Monetary Authority of Singapore (MAS) has recently published a consultation paper setting out several proposals to facilitate securities-based crowdfunding in Singapore.
Back to topWhat is securities-based crowdfunding?
Securities-based crowdfunding involves individuals contributing funds to a company (usually a start-up or a small and medium-sized enterprise (SME)) in return for shares in the company. The value of their shares would increase alongside the success of the company and they may also receive a share of the company’s profits through dividends or other distributions. Funds are typically raised through online platforms.
Back to topThe existing securities framework in Singapore
The existing securities framework is not particularly favourable to securities based crowdfunding. Under the Securities and Futures Act (Chapter 289) of Singapore (the “SFA”), any offer of securities would have to be accompanied by a prospectus to be lodged and registered with MAS, unless an exemption under the SFA applies. Indeed, given the high costs and resources involved in preparing a prospectus, it may not be viable for start-ups or SMEs to comply with the prospectus requirement for small fundraising exercises.
In addition, intermediaries which deal in securities, including intermediaries operating securities-based crowdfunding platforms, are required to hold a Capital Markets Services licence under the SFA, unless exempted. Depending on their business model, intermediaries operating securitiesbased crowdfunding platforms may also be required to meet other licensing requirements if they undertake other regulated activities such as providing corporate finance advisory services to persons making offers of securities or providing financial advisory services to investors. Apart from the foregoing licensing requirements, intermediaries operating securitiesbased crowdfunding platforms would also have to meet various financial requirements.
Back to topProposals to facilitate securities-based crowdfunding in Singapore
As a start, MAS proposes to facilitate securities-based crowdfunding only to accredited investors (“AIs”) and institutional investors (“IIs”). AIs generally refer to high net worth individuals with net personal assets exceeding S$2 million in value or whose income in the preceding 12 months is not less than S$300,000, while IIs refer to the list of financial institutions prescribed by the SFA.
Securities-based crowdfunding investments tend to entail high risks. For example, they are more likely to experience capital loss and are less liquid as compared with traditional securities investments. As such, MAS is of the view that AIs and IIs are likely to have more capacity, experience and resources in investing in start-ups and SMEs. MAS also proposes to relax certain financial requirements for intermediaries that deal in securities, including those operating securitiesbased crowdfunding platforms, provided that such intermediaries do not handle, hold or accept customer monies, assets, or positions, and do not act as principal in transactions with investors.
MAS has proposed that the minimum base capital requirement for such intermediaries be lowered to S$50,000. (The current base capital requirement is S$500,000 and S$250,000 for such intermediaries that deal with retail investors and AIs respectively.) MAS has also proposed to remove the requirement for such intermediaries to maintain a security deposit of S$100,000 with MAS.
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