A good policy on crowdfunding will enhance Hong Kong's role as global financial centre
Ming Wong says crowdfunding is here to stay, so local government and financial leaders need to build a model for it, as other centres have
Crowdfunding has become a global phenomenon, allowing crowds of people to support their favourite projects, charities or companies. Hong Kong Free Press, for example, recently raised more than US$75,000 in one month via a local platform. Start-up companies use crowdfunding to raise equity, though that is relatively new and falls in the grey area between the regulated public arena and private equity investing, which is unregulated.
Given Hong Kong's role as a global financial centre and our government's interest in promoting social innovation, it is imperative to understand the role equity crowdfunding can play in helping Hong Kong achieve its aspirations.
Many countries, including Italy, Britain and the United States, have recognised the link between job growth and the ease of raising capital. In 2013, the Italian Parliament issued a law, which also addressed equity crowdfunding, to allow "innovative start-ups" to raise risk capital through online portals. In Britain, the Financial Conduct Authority began regulating loan- and equity-based crowdfunding platforms last year.
A stunning development, however, occurred in the United States in March. The Securities and Exchange Commission released final Regulation A+ rules under Title IV of the JOBS Act that allow growth companies to raise up to US$50 million from unaccredited investors in a mini-IPO-style offering, serving as a potential alternative to venture or other institutional capital.
These new rules mean that companies aspiring to be the next Uber or Airbnb would be allowed to offer their stock directly to their drivers, riders, renters and tenants as well as the general public. To protect unaccredited investors (deemed less sophisticated), the rules restrict them to investing no more than 10 per cent of their net worth or net income each year, whichever is greater.
Closer to home, Japan, Taiwan and Malaysia have also introduced similar legislation that legalises equity crowdfunding. So it is disappointing that our Securities and Futures Commission has done little besides issue a notice on the regulations that might apply to equity crowdfunding and the risks involved.
Equity crowdfunding is here to stay and constitutes an important part of Hong Kong's role as a global financial centre. For our policymakers, legislators and regulators to do nothing would be a major mistake. Instead, we need to learn from global best practices to design an appropriate equity crowdfunding model for Hong Kong, one that provides adequate protection to the investing public while allowing start-up companies to access the capital they need to create jobs, grow their businesses and contribute to the economy.
Ming Wong is cofounder and CEO of Asia Community Ventures