Crowdfunding as Alternative Financing for Start-ups and SMEs

Ms Foo Mee Har asked the Prime Minister how the new licensing regime for crowdfunding platforms announced by MAS is expected to support crowdfunding as an alternative source of financing for startups and SMEs as well as ensure schemes under crowdfunding are fair, transparent and protect investors against frauds.

The Monetary Authority of Singapore's (MAS') new regulatory framework supports securities-based crowdfunding (SCF) as an alternative source of financing for startups and small and medium enterprises (SMEs). It does so in two ways.

First, MAS has simplified an existing rule that allows companies raising less than $5 million within 12 months (small offers) to do so without a prospectus. Under the existing rule, SCF platforms assisting companies to raise funds were required to ascertain that investors have the knowledge, experience and are suited for SCF investments. Most retail investors would have difficulties meeting all three requirements. With the simplified rule, SCF platforms need to ascertain that investors meet any one of the three requirements to be able to have access to SCF investments. It will expand the potential investor pool for SCF investments.

Second, MAS will reduce the financial requirements for SCF platforms that raise funds from only accredited and institutional investors and do not handle customers’ monies. Both the minimum base capital and operational risk requirements for such intermediaries will be reduced to $50,000. The previous requirements were $250,000 and $100,000 respectively. The requirement for a $100,000 security deposit will also be removed.

But SCF investments are not without risk. MAS’ SCF regulatory framework seeks to strike the right balance between widening access to funding for startups and SMEs and protecting investor interests. All SCF platform operators seeking to operate in Singapore will require licensing by MAS. MAS will admit only platform operators that are assessed to be fit and proper. They are required to ensure proper segregation of investors’ monies and keep proper records of transactions.

As a further safeguard for investors, MAS has introduced a new requirement for SCF platform operators that are intermediating small offers to disclose the key risks of SCF investments. These operators will also be required to obtain investors’ acknowledgement that they have read and understood these risks before they can proceed to invest. However, I have to emphasise that SCF investors have to exercise due care and must, ultimately, bear responsibility for investment risks.

SCF operators are expected to deal fairly with investors in the conduct of their business. Where a licensed intermediary is found to have breached MAS’ rules, supervisory measures will be taken, ranging from enhanced audits to revocation of licence.