SEC OKs crowd-funding rules

MANILA, Philippines–Crowd-funding is now a clearer option for start-up and small medium enterprises (SMEs) seeking to raise up to P50 million for expansion as the Securities and Exchange Commission (SEC) recently approved the rules and regulations on this online fund-raising scheme.

“Information and communication technology has made a significant impact on our financial environment,” SEC chair Emilio Aquino said in a press statement on Tuesday.

“With the rules and regulations governing crowdfunding in place, 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,” he added.

Crowdfunding is a fund-raising activity typically conducted through an online platform and usually for startups and SMEs.  Based on the rules, the proponents are exempted from the usual registration requirement for as long as they follow the SEC guidelines.

Among others, the new crowd-funding framework limits the amount of securities that can be sold by the issuer within a 12-month period to P10 million, when offered and sold to any investor or the general public.  The limit is higher at P50 million when such securities are sold to qualified investors or the sophisticated institutional investors.

The new framework also prescribes a limit to the amount of securities that can be sold to each investor during the 12-month period. For retail investors with annual income of up to P2 million, the limit is set at a maximum of 5 percent of their total income per year.  For retail investors with annual income of more than P2 million, they can buy only up to a maximum value of 10 percent of their total annual income.  Qualified investors are not subject to the same limits.

The rules also require that all crowd-funding transactions must be done through registered intermediaries, which must in turn comply with the requirements for intermediaries and the related requirements. The issuance of securities must be conducted exclusively through the platform of this intermediary, which could be a broker-dealer, investment house or funding portal – that is registered with the SEC as an intermediary.

A funding portal involved as an intermediary in the offer or sale of crowdfunding securities is prohibited from offering investment advice or recommendations, marketing the securities displayed on its platform, compensating people who solicit investments for securities displayed or referenced on its platform or managing investor funds or securities.

Among others, the SEC may require additional capital in the form of cash or insurance to cover any risky activities arising from the proposed or actual operations of the crowdfunding intermediary.

The framework also contains a provision whereby an intermediary must direct the refund of investor funds if an issuer does not complete an offering. Issuers must submit annual reports and progress updates disclosing the issuer’s development in achieving the target offering amount. (Editor: Jonathan P. Vicente)