SEC sets ₱50-M cap for online fundraising

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Metro Manila (CNN Philippines, July 9) — The Securities and Exchange Commission (SEC) is putting online fundraising activities under its watch, a platform which has grown popular in supporting small businesses.

The corporate regulator approved rules on crowdfunding on July 4 though SEC Memorandum Circular 14, which covers online-based systems used by small and medium-sized enterprises (SMEs) to secure capital from public investors. This is an alternative to financing through banks or the local stock market, both of which are already regulated by government.

According to SEC's definition, crowdfunding generally refers to fundraising activities done online for the benefit of startup companies. It engages the entrepreneur or project initiator and willing investors through a platform that links the two. The SEC is focusing on lending- and equity-based crowdfunding, where people lend cash to a startup in exchange for loan repayments with interest or dividends.

“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," SEC Chairperson Emilio Aquino said in a statement on Tuesday.

Crowdfunding may also refer to donations for charitable causes or rewards, the SEC said. Among the popular crowdfunding websites are GoFundMe and Kickstarter.

The Securities Regulation Code requires that any form of investment cannot be sold or offered in the country unless it is registered with the SEC. However, the regulator said the new rules will not require every deal struck through online fundraising to be recorded with the SEC, but will only mandate fundraising platforms to register with the commission.

The platform or intermediary where the capital-raising exercise is done must be registered with the SEC, covering the broker-dealer, investment house, or funding portal that operates online. They must maintain a strong capital base, disclose fees and charges, and educational materials for prospective investors.

The regulator also capped the amount which can be raised via crowdfunding. An issuer can only float up to ₱10 million in a span of a year from any investor; while the figure can go up to ₱50 million within a 12-month period when selling to "qualified" investors — or those who have are well-versed about investing, the SEC said.

In turn, people placing their money through crowdfunding can only invest up to five percent of their annual income if they earn below ₱2 million. The allowance rises to a tenth of the yearly income if they make more than ₱2 million in a year.

The regulator has been working on the guidelines since 2016. Existing crowdfunding users and platforms are given three months to comply with the new rules and register with the SEC.