Monday, September 16, 2019

SEC’s timely move paves way for crowd funding

May 23. 2019
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By The Nation

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Smaller entities unable to raise money like corporations do can now turn to the public for backing

The Securities and Exchange Commission (SEC) has issued new regulations to facilitate the country’s crowd-funding system for small and medium-sized enterprises (SMEs) as well as tech startups, in a move that will help promote the growth of digital economy and society via the issuing of capital shares and debentures.

At this stage, crowd funding is still a relatively new method of raising money from the investing public to finance technology and related ventures that cannot meet the requirements of traditional funding methods such as Initial Public Offerings.

The SEC, which is empowered to regulate capital markets, has invited qualified entities to apply for licences to operate crowd-funding platforms to help drive the growth of SMEs and start-ups. Each one is allowed to mobilise up to Bt40 million in an issue of equity shares and debentures. The SEC regulations also set out conditions on individuals and juristic persons wanting to invest in crowd-funding platforms, and SEC licence holders would supervise their operations.

The regulations, which became effective on May 16, will open up a new funding avenue for small enterprises and startups that have faced difficulties raising money to grow their budding businesses. This will help reduce and diversify the country’s dependence on large enterprises in the long run, while encouraging young entrepreneurs to innovate for a more sustainable economic and social development.

The SEC move is timely, given that many businesses and industries in Thailand and abroad have faced the disruptive forces of new technologies, such as automation, artificial intelligence, robotics, mobile banking, e-commerce and blockchain. This onslaught has made it necessary to facilitate a new generation of entrepreneurs who are tech-savvy and keen to help implement the digital transformation.

In practice, the SEC regulations will cover fund-raising from the general public via websites and funding portals that serve as the intermediaries between SMEs and startups and the investing public. For the first 12 months of gaining approval for crowd funding, each enterprise is permitted to mobilise a maximum of Bt20 million out of the total Bt40 million per enterprise. After that they have to report their funding activities to the SEC, which is also tasked with protecting the interests of individual and small investors. Such people are supposed to have a good understanding about the risks and rewards of their investment, since startups carry more risks than established businesses due to various uncertainties.

To curb risks facing individual investors, the SEC will not allow an individual investor to seed more than Bt100,000 per startup, or Bt1 million in total per year per person, covering both capital shares and debentures, but there is no upper investment limit on corporate investors.

According to the SEC, licensed platforms are required to screen SMEs and startups that are appropriate for crowd funding and supervise their disclosure of information for judgement by the investing public. The SEC will play no role in crowd-funding approval or information disclosure. As a result, platforms must be transparent about their operating system, selection and approval processes and risk evaluation for consideration by the SEC before licences can be issued to qualified platform operators.

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