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MAS to require licences for business loan crowdfunding platforms
CROWDFUNDING platforms that currently use a promissory note exemption to reach retail investors will have to obtain licences to continue operating, the Monetary Authority of Singapore (MAS) announced on Wednesday.
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 in its response to an earlier public consultation on securities crowdfunding.
It is estimated there are about 10 debt crowdfunding platforms in Singapore right now, such as MoolahSense and Capital Match, that help businesses to borrow money from retai 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. Borrowers are able to use such platforms to borrow money without issuing a prospectus byconsolidating funds from multiple lenders into a single entity that crosses S$100,000 hurdle.
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 to remove the exemption for promissory notes. Crowdfunding platforms that wish to continue helping companies to raise business loans from retail investors will thereafter have to be licensed by MAS. Borrowers will not be able to use the promissory note exemption to avoid issuing a prospectus. In the meantime, MAS has disallowed the consolidation of multiple loans into a single promissory note to cross the S$100,000 hurdle.
But while the licensing requirement will be added, MAS will also make it slightly easier for licensed operators to reach retail.
The regulator will streamline existing rules that exempt offers of less than S$5 million from having to issue prospectuses. While companies and intermediaries that wanted to make use of the exemption currently have to ensure that investors have the knowledge, experience, suitability and financial means to invest in securities crowdfunding, under the new rules investors just have 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 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, to S$50,000 from S$250,000. MAS will also remove a requirement for a S$100,000 security deposit.
MAS has also clarified its restrictions on advertising to make it clear that crowdfunding platforms are allowed to market their services as long as they do not advertise specific deals that have not yet been completed.
"Securities-based crowdfunding is a useful addition to our financing landscape," MAS assistant managing director for capital markets Lee Boon Ngiap said in a statement. "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 and protecting investor interests."