Crowdfunding platforms face regulatory push

Jane Cheung

Authorities are mulling over regulating crowdfunding platforms to guard against the illegal sourcing of funds for anti-national security, terrorist and money laundering activities, Secretary for Financial Affairs and Treasury Christopher Hui Ching-yu said.

Hui said in his blog yesterday authorities would like to ban individuals or organizations from gathering funds for activities to jeopardize national security and cut the local capital chains for lawbreakers in self-exile.

He said crowdfunding comes in four common types, including donations for charitable or even political purposes, and in exchange for products or services.

The other two types are equity crowdfunding where investors provide capital for a project or business in exchange for income deriving from shares, as well as peer-to-peer lending in which online platforms match lenders and borrowers and link them up for guarantee-free loans.

Hui said some of the crowdfunding activities, such as the equity type, is partly regulated existing laws such as the Securities and Futures Ordinance and the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

"But Hong Kong is still lacking a set of law designated for crowdfunding regulations, in particular those in terms of donations and charitable purposes," he said.

Without regulations, he said, crowdfunders may lose capital if platforms fold suddenly.

For equity and reward types, investors may be cheated if crowdfunders offer false or partial information about projects and usage of the capital, he added.

"Sums gathered in crowdfunding may also be used to plan or support illegal activities such as terrorism and anti-national security plots," Hui said.

He said authorities are mulling over regulating several aspects, including introducing a licensing system for platforms operating in Hong Kong and to require them to vet crowdfunding projects on their sites.

"Do crowdfunders need to register or get approval before raising funds, so must they present clear, accurate and fair information to investors?" he asked.

He said authorities are also considering establishing a reporting mechanism on suspicious transactions that may involve illegal activities.

But he said a wide range of details have to be laid down - from coverage of crowdfunding activities, whether to set a funding cap to who to enforce the law - and hoped a consultation can commence this year.