SFC outlines risks of crowd-funding and potential regulatory issues

7 May 2014



The Securities and Futures Commission (SFC) today issues a notice reminding parties engaging in crowd-funding activities of the potential application of relevant securities laws and regulations, and reminding the public of potential risks relating to participating in crowd-funding activities in view of the increase in such activities internationally and in Hong Kong (Notes 1 & 2). 

Parties engaging in crowd-funding activities are reminded that this may be subject to provisions of the Securities and Futures Ordinance, the Companies (Winding Up and Miscellaneous Provisions) Ordinance and/or relevant SFC requirements, including regulations on offers of investments, intermediary licensing and conduct of business requirements, and requirements applicable to automated trading services and/or recognized exchange companies. Other Hong Kong laws and regulations may also apply depending on the features of the activities. Parties looking to engage in crowd-funding activities should seek professional advice if in doubt to ensure compliance with all applicable laws and regulations.

Potential risks involved in participating in crowd-funding activities as an investor include risk of default, risk of illiquidity of the investment, risk of platform failure and insolvency, risk of fraud, risks associated with platforms operating outside Hong Kong, information asymmetry and lack of transparency, cyber security issues and possible illegal activities. Investors considering participating in crowd-funding activities and in doubt about the nature, risk profile and regulatory status of such activities should seek professional advice.

“Parties seeking to engage in crowd-funding activities should be aware that a breach of the relevant laws could lead to serious consequences including criminal liability,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. “Investors should also take note that participating in crowd-funding activities could involve significant risks.” 

“The SFC will keep in view the development of crowd-funding activities and will take appropriate regulatory action where non-compliance with relevant securities laws and regulations is detected,” Mr Alder added.

The Investor Education Centre has also published information on its website outlining the key risks of crowd-funding activities (Note 3).

End

Notes:

  1. “Crowd-funding” typically refers to the use of small amounts of money, obtained from a large number of individuals or organisations, to fund a project, a business or personal loan, and other needs through an online web-based platform, according to a staff working paper published by the International Organization of Securities Commissions on 5 February 2014. The more common types of crowd-funding include equity crowd-funding, peer-to-peer lending, donation crowd-funding and reward/pre-sale crowd-funding.
  2. Please see the “Notice on Potential Regulations Applicable to, and Risks of, Crowd-funding Activities”issued by the SFC today. 
  3. Information on the subject is available on the website of the Investor Education Centre (www.hkiec.hk).


Page last updated : 7 May 2014