SC releases new guidelines for equity crowdfunding

• Operators have obligations to ensure issuers’ compliance with platform rules
• Issuers can tap on investments from retail, sophisticated and angel investors

THE Securities Commission Malaysia (SC) has released the Guidelines on Regulation of Markets under Section 34 of the Capital Markets and Services Act 2007 to introduce new requirements for the registration of equity crowdfunding (ECF) platforms, and to provide governance arrangements for the operator of such platforms.
 
The Guidelines require the operator’s board of directors be fit and proper, and have the ability to operate an orderly, fair and transparent market, the SC said in a statement.
 
As the operator plays a critical role in ensuring confidence in the ECF platform, the guidelines entrust the operator with obligations to ensure issuers’ compliance with platform rules.
 
The operator may deny an issuer access to its platform if it is of the view that the issuer or the proposed offering is not suitable to be hosted on the platform.
 
The operator is also required to ensure that funds obtained from investors are safeguarded in a trust account until the funding goal is met, the SC said.
 
Under this framework, an eligible issuer can raise up to RM3 million (approx. US$845,000) within a 12-month period.
 
Issuers will be able to tap on investments from retail, sophisticated as well as angel investors, subject to the investment limits as provided in the guidelines.
 
ECF investors are given a six-day cooling off period, within which they may withdraw the full amount of their investment.
 
In addition, if there is any material adverse change relating to an issuer, the investors must be notified of such change. The investors will be given the option to withdraw their investment if they choose to do so within 14 days after the said notification.
 
The SC first announced its intentions to allow equity crowdfunding last August, saying it considers alternative funding channels such as ECF a crucial and innovative market-based structure to facilitate growth of new small-scale enterprises, which contribute significantly to the national economy.
 
ECF is a new form of fundraising that allows startup or other smaller enterprises to obtain capital through small equity investments from relatively large numbers of investors, using online portals to publicise and facilitate such offers to crowd investors.
 
In September 2014, SC released its public response paper on the proposed ECF framework having reviewed the comments and feedback received from various stakeholders on the proposed ECF framework.
 
The Guidelines on Regulation of Markets under S.34 of CMSA are available here. These guidelines will replace the Guidelines on Regulation of Markets (issued in September 2007) and is effective on Feb 10 2015.
 
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