How is lending-based crowdfunding regulated? Does it fall under the Moneylenders Act?
"Generally, securities-based fundraising from the public through equity-based crowdfunding is regulated by MAS under the SFA and the FAA. Therefore, such activity might constitute a regulated activity that requires a licence, but much will depend on the precise model."
Fundraising from the public through lending-based crowdfunding, or P2P lending, is regulated by MAS under the Securities and Futures Act (Cap. 289) (the “SFA”) and the Financial Advisers Act (Cap. 110) (the “FAA”).
Under section 239(3) of the SFA, any invitation to lend money to an entity (e.g. a company) is deemed to be an offer of debentures, which is a type of security. The entity offering debentures is required to prepare and register a prospectus with MAS in accordance with Division 1 Subdivision 2 of Part XIII of the SFA (“Prospectus Requirements”) unless it can fall within one of the several prospectus exemptions. The prospectus exemptions available to companies include the following:
- Small offers
Under section 272A of the SFA, offerors may make personal offers of securities, up to $5 million within any 12-month period, without a prospectus subject to certain conditions. A personal offer is one that is directed at a pre-identified individual or entity, which would include offers made to persons who have previous professional or other connection with the offeror. As the word “personal” suggests, each offer must be made personally by the offeror or by a person acting on its behalf to the preidentified individual or entity and can only be accepted by the preidentified individual or entity to whom the offer was made. Further details on the criteria for a “personal” offer can be found in the Guidelines on Personal Offers made pursuant to the Exemption for Small Offers.
- Private placements
Under section 272B of the SFA, offers of securities to no more than 50 persons within a 12-month period may be exempted from the Prospectus Requirement subject to certain conditions.
- Institutional investors.
Under section 274 of the SFA, offers of securities to institutional investors are exempted from the Prospectus Requirements.
- Accredited investors
Under section 275 of the SFA, offers of securities to accredited investors may be exempted from the Prospectus Requirements subject to certain conditions.