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Rules on crowdfunding out soon

The country’s corporate regulatory watchdog, Securities and Exchange Commission (SEC), will come up with rules that will delineate multiple channel fund-raising activities to bankroll a business venture from illegal investment-taking schemes.

This activity called crowdfunding or crowdsourcing is the practice of raising monetary contributions from different people via different channels like social media to finance a business venture.

SEC Chairperson Teresita Herbosa said the agency wants to establish a clear line between crowdfunding and illegal investment scams in the country.

SEC logo (MB File Photo)

SEC logo (MB File Photo)

“We are coming out with rules to govern crowd sourcing because under the SRC, we’re supposed to license any sale of any kind of securities and when you go online trying to convince people to invest in your little business, that’s really an investment-taking venture, that’s a form of securities,” Herbosa said in an interview.

Crowdfunding or crowdsourcing is no longer a new source of financing for entrepreneurs here and abroad.

An international report showed that equity crowdfunding grew over 100 percent in both the UK and US in 2015, while according to Business Insider Intelligence Forecast, the worth of funds to be sourced through this method is estimated to go up to $11 billion by 2020 from $1 billion last year.

Here, crowdfunding are mostly done by technology start-ups.

“In crowdfunding, originally for many, it started out as a donation. So when it’s just a sourcing of tulong [help], it’s not investment-taking and that’s outside SEC jurisdiction. But when you go to social media not only to gain followers and maybe gain likes and donations, when you solicit money and promise a return, that’s already investment-taking, which falls within the jurisdiction of the SEC,” SEC Commissioner Ephyro Luis B. Amatong explained.

In the Philippines, Amatong said, there is no clear set of guidelines that will formally disassociate crowdfunding to investment scams since both activities can easily be done through social media.

“Right now, we don’t have a framework for that but we understand that this is a new frontier in gaining some funds especially for start-ups and small companies. So MSRD [Markets and Securities Regulation Department] is going through a process of looking at crowdfunding rules that have been adopted elsewhere in the region and see how they are applicable to us in the Philippines,” Amatong said.

“The situation with crowdfunding is normally, the enterprise is so small that to file a regular registration statement— you have to hire a lawyer, you have to hire underwriter— is too expensive,” he added.

Nevertheless, he said that SEC still wants to maintain a balance between the ability of a small startup to raise money through social media and investor protection.

“Those are what MSRD is currently studying,” he further said.