- Alternative funding channels aim to facilitate growth of small-scale enterprises
- Deadline for comments is Sept 5
THE Securities Commission Malaysia (SC) has published a consultation paper seeking public feedback on the proposed regulatory framework for equity crowdfunding (ECF).
ECF is a new form of fundraising that allows startups 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.
The SC 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.
Among the proposed conditions outlined in the consultation paper released by the SC, is that only locally incorporated private companies (excluding exempt private companies) will be allowed to be hosted on the ECF platform and offer their shares on the platform.
In the case of a private company, the offering of shares on the ECF platform may be seen as making a public offering of its shares.
In order to facilitate this, the SC and the Companies Commission of Malaysia (CCM) have been in discussion to create a safe harbour for private companies to be able to offer their shares to the public and avail themselves of the benefits that can be offered by an ECF platform as a funding avenue.
The ECF platform will be regulated as a market for the purposes of securities laws and shall be subject to appropriate regulation and supervision by the SC.
The SC also noted that Australia, the United States and Canada have proposed to prohibit companies with no written business plans (known as blind pools) and investment fund companies which are structurally complex from raising funds on an ECF platform.
Blind pools are prohibited as they are deemed to pose high risk to investors, given their lack of business plan. Australia additionally proposes that public listed companies and companies with a capital exceeding US$10 million be similarly prohibited as these entities may already be commercially established and thus have other avenues of funding available to them.
In light of these precedents established in other markets, the SC has proposed that the following entities be prohibited from raising funds through an ECF platform:
- commercially or financially complex structures (i.e. investment fund companies or financial institutions);
public listed companies and their subsidiaries;
companies with no specific business plan or its business plan is to merge or acquire an unidentified entity (i.e. blind pool);
companies that propose to use the funds raised to provide loans or make investment in other entities; and companies with paid up share capital exceeding RM5 million.
While ECF offers the potential to bridge capital gap for startups and small enterprises, it also carries certain financial risk for investors, just like any other investment products.
Acccording to the SC, it is thus important to provide a properly regulated framework to balance the growth of the ECF industry with achieving appropriate level of protection for investors.
Taking into account that the ECF industry is still relatively new in Malaysia and that ECF is aimed at startups and small enterprises, the SC has also proposed the following restrictions on funding:
To limit the maximum amount that can be raised by an issuer to a sum of RM3 million within a 12-month period;
The sum of RM3 million shall apply irrespective of the number of projects an issuer may seek funding for during the 12-month period;
An issuer can only utilise the ECF platform to raise a maximum amount of RM5 million. Upon meeting the RM5 million threshold, the issuer will no longer be eligible to further raise funds through an ECF platform; and
An issuer shall not be allowed to be hosted concurrently on multiple ECF platforms.
The consultation paper in relation to the proposed ECF regulatory framework [PDF document] can be obtained here. The deadline for written comments is Sept 5 and can be submitted to the address or email stated below:
Office of the General Counsel
Securities Commission Malaysia
3 Persiaran Bukit Kiara, Bukit Kiara
50490 Kuala Lumpur
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