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MAS adjusts securities crowdfunding rules to facilitate retail access

It closes a loophole that has enabled issuers to dodge publishing prospectuses, but will loosen the rules to open up access to retail investors

The Monetary Authority of Singapore (MAS) will modify proposed rules on securities crowdfunding to better accommodate retail participation, in a shift from earlier proposals that mostly focused on accredited and institutional investors.


THE Monetary Authority of Singapore (MAS) will modify proposed rules on securities crowdfunding to better accommodate retail participation, in a shift from earlier proposals that mostly focused on accredited and institutional investors.

Following a public consultation exercise, MAS has moved to close a loophole that allowed some crowdfunding platforms to use an exemption for promissory notes in order to reach retail investors - without the platform being licensed or the issuer having to publish a prospectus.

But existing rules will also be tweaked to make it easier for licensed securities crowdfunding platforms to tap the retail market, the financial markets regulator said on Wednesday.

There are estimated to be about 10 debt crowdfunding platforms in Singapore now; MoolahSense and Capital Match are examples of such platforms that help businesses borrow money from retail investors.

Some of those platforms are able to operate without capital market services licences because they make use of an exemption for promissory notes that are worth at least S$100,000, issued to a single issuer and which mature within a year.

The workaround used by some platforms is to consolidate funds from multiple smaller lenders into a single entity to cross that S$100,000 hurdle, and thus be exempted from the cost and trouble of putting out a prospectus.

But MAS said that the workaround goes against the intention of the rule, which was to reduce the burden on good-credit borrowers trying to meet short-term financing needs from sophisticated investors.

MAS will therefore seek a legislative amendment by the end of the year to remove the exemption for promissory notes. Crowdfunding platforms looking to continue helping companies to raise business loans from retail investors will thereafter have to be licensed by the MAS.

But while the licensing requirement will be added, platforms that hold a licence will find it less onerous to access retail.

To this end, MAS will streamline the rules under the small-offer exemption. Under these rules, which exempt offers of less than S$5 million from having to issue prospectuses, companies and intermediaries that now seek the exemption have to pre-qualify investors based on knowledge, experience, suitability and financial means tests to invest in securities crowdfunding.

Under the streamlined rules, investors will only need to demonstrate knowledge, experience or suitability; the "financial means" requirement will be dropped in favour of a beefed-up risk disclosure and assessment framework.

The small-offer exemption will, however, continue to prohibit cold-calling or unsolicited marketing to retail.

MAS also plans to go ahead with its proposal to lower the base capital and minimum operational risk requirements for securities crowdfunding platforms from S$250,000 to S$50,000. MAS will also remove a requirement for a S$100,000 security deposit.

The regulator has also clarified its restrictions on advertising, to make it clear that crowdfunding platforms can market their services - as long as they do not advertise specific deals that have yet to be completed.

MAS assistant managing director for capital markets Lee Boon Ngiap said in a statement: "Securities-based crowdfunding is a useful addition to our financing landscape.

"At the same time, securities crowdfunding can be quite risky. The measures we are implementing seek to strike the right balance between improving access to securities crowdfunding for start-ups and SMEs (small and medium-sized enterprises) and protecting investor interests."

One industry player said the licensing requirement could force some smaller players to call it quits, but noted that the lowered capital requirements could mitigate the impact of the changes on the industry.

But most market professionals welcomed the moves.

MoolahSense chief executive Lawrence Yong said his firm is already in the process of applying for a licence.

"The benefit of regulation puts in place some minimum standards and levels the playing field for operators. That works well for an orderly growth for the sector," he said.

He added that his firm used the promissory note exemption because it was the least-costly option for issuers, since there was no restriction on the number of investors or how much could be raised, and the crowdfunding platform did not face costs related to being licensed.

Once MoolahSense obtains its licence, it will advise issuers to either use the small-offer exemption, or in cases where the number of investors is not expected to exceed 50, to use exemptions for private placements, Mr Yong said.

FundedHere, an equity and lending platform, said the new rules will better align regulations with the intent of crowdfunding.

"This better reflects the true spirit and promise of crowdfunding," FundedHere chief executive Michael Tee said. "It will invigorate Singapore's startups as well as SMEs, and lead to greater participation in crowdfunding as a viable option to raise capital."

Janet Young, head of group channels and digitalisation at United Overseas Bank, which has a tie-up with Israeli platform OurCrowd, said the new rules brought clarity.

"The clearer regulation for securities-based crowdfunding platforms fosters a more conducive environment for the industry to progress and gain credibility among the broader investor community, while ensuring proper investor safeguards are in place."

Wong Partnership lawyer Rachel Eng said the rules could make it easier for existing licence holders to expand into the retail securities crowdfunding space.

"The banks or private banks already have all those risk disclosures and so on in place; they just have to extend down into these frameworks to operate in the retail space."

She said that, given retail interest in the space, it was better for regulators to address the issue rather than try to keep it away.

"If you don't open those classes to people here, water will find its level," she said. "They will go look online. You might as well put in front of them good potential assets and make sure they're aware of the risks."