SEC pushes tougher safeguards on crowdfunding

MANILA, Philippines — The Securities and Exchange Commission (SEC) is looking to overhaul the Philippines’ crowdfunding rules, proposing higher fundraising limits alongside stronger safeguards for retail investors.

In a draft memorandum circular, the corporate regulator proposed the “Revised Rules and Regulations Governing Crowdfunding,” which would cover both equity-based and debt-based crowdfunding conducted through online electronic platforms.

The amendments seek to update the regulatory framework introduced under SEC Memorandum Circular No. 14, series of 2019, amid developments in the crowdfunding market.

The regulator is accepting comments, suggestions and other inputs until Sept. 20.

Under the proposal, issuers may offer securities worth up to P25 million within a 12-month period.

Offerings to qualified investors may exceed P25 million but not more than P100 million over the same period.

Retail investors earning up to P2 million yearly, meanwhile, may invest a maximum of 5 percent of their annual income across crowdfunding offerings.

Those earning more than P2 million may invest up to 10 percent. Qualified investors would not be subject to these limits.

The SEC is also proposing stronger investor-protection measures as crowdfunding expands into both equity and debt instruments.

These include stricter due diligence, investor education, fund segregation, cybersecurity, disclosures and reporting requirements.

Before accepting an investment commitment from a retail investor, intermediaries would have to provide educational materials explaining risks such as potential illiquidity, total loss, dilution, issuer failure and the absence of guaranteed returns.

Retail investors would also get a cooling-off period of at least five business days before their funds could be released.

Investor funds would have to be kept in a trust or escrow account with a licensed bank or another authorized institution and segregated from an intermediary’s own funds.

Commingling with operational funds would be prohibited.

For debt-based crowdfunding, the SEC wants intermediaries to conduct documented credit assessments. INQ