Recently, the local crowdfunding scene has received a great boost in terms of regulation, as the national financial regulator, Monetary Authority of Singapore (MAS), just made changes to the rules concerning equity-based crowdfunding and debt-based crowdfunding. This is clearly due to the fact that crowdfunding would be here to stay in the global scene and to be included in this new industry, the financial regulations have to adapt. In my opinion, while the MAS had simplified the regulations, there are still safety nets to protect investors, especially retail investors. We have summarized the key points of the news release which would affect you.
- Debt and equity based crowdfunding platforms now need a Capital Markets Services (CMS) license from the MAS to operate.
This licensing ensures that all registered platforms are of regulatory and professional standards. This can not only safeguard investors but also ensure credibility in those that are registered.
- You would be required to demonstrate that you understand the risks that you are undertaking and clear on the inherent characteristics of crowdfunding, before you are able to invest in any projects.
While there are no clear examples provided, MAS stated that investors show that they are both knowledgeable and experienced in securities-based crowdfunding. This would then simplify the pre-qualification checks for investors whereby the procedure can be done quicker.
- Investors would have to acknowledge that they understand the keys risks pertaining to buying equities in a crowdfunding project before making any commitments.
Compared to previously, where investors, including retail investors, are not required to acknowledge these risks, it is an added layer of safety to ensure that people know what they are signing up for.
- Accredited Investors may now have access to more choices of crowdfunding platforms as the regulatory barriers are lowered. From an initial requirement of $250,000 and $100,000 respectively, the base capital requirement and minimum operational risk requirement for platforms serving accredited investors and institutional investors are both lowered to $50,000. However, they would need to put up a security deposit of $100,000.
This security deposit can be viewed as an operational buffer to ensure the solvency of such platforms, as well as to prevent any uncommitted players from tarnishing the budding industry. In addition, taking into their roles as intermediary, these restricts the impact in the market should a systemic failure occurs.
It is certainly great that the Singapore government is adapting and even changing the existing regulations to fit the ever dynamic financial environment. It is definitely positive that Singapore is following in the lead of United States in terms of regulating crowdfunding.
However, it is important for individuals to know each different investment type possesses different inherent risks and returns. It may open up greater opportunities but one must know their tolerance.