Crowd funding regulated

Dedicated financial institutions needed

The Financial Markets Authority (FMA) has issued a set of regulations governing crowd funding activities to finance startups and SMEs. The regulations were spelled out through decision number 3 issued on June 11.

As opposed to traditional fundraising schemes, crowd funding allows SMEs and startups to raise money online through selling shares to a wider audience of small investors.

SMEs or startups should seek to raise a capital of at least $20,000 to be eligible for crowd funding. The input of each investor should be no less than $500 and no more than $10,000. A separate escrow account should be opened for each funding operation.

Financial institutions engaging in online crowd funding activities should be either local firms incorporated solely for the purpose of such activities with a minimum capital of LL1 billion ($666,000), or foreign crowd funding firms that have a local branch and an equity of at least $666,000.

Crowd funding financial institutions require a license from the FMA before they can launch their activities. In order to get a license, a three-year feasibility study covering the financing sources and potential losses and gains should be presented.

Once it receives the FMA’s permission, the institution should file its approval to start activities to the FMA within the following six months, otherwise it would lose the permission.