Peer to Peer Lending/ Crowdfunding Requirements in Singapore
Crowdfunding generally refers to capital-raising approach that seeks to raise funds from a large number of individuals. Typically, funds are raised through an online platform using the following forms of crowdfunding:
- Donation-based crowdfunding –where individuals pool their resources to support charitable cause;
- Reward-based crowdfunding – where individuals give money to a company in return for a “reward” which is usually a product produced by the company;
- Lending-based crowdfunding/ Peer to Peer Lending – where individuals lend money to a company and receive the company’s legally-binding commitment to repay the loan at pre-determined time intervals and interest rate; and
- Equity-based crowdfunding – where individuals invest in shares sold by a company and receive a share of the profits in the form of a dividend or distribution, subject to the company’s discretion.
Peer to peer lending also commonly known as “P2P lending” and equity-based crowdfunding activities would require a licence under Monetary Authority of Singapore (“MAS”).
Fundraising from the public through lending-based crowdfunding, or P2P lending is regulated by MAS under the Securities Futures Act (“SFA”) and the Financial Advisers Act (“FAA”). Any invitation to lend money to an entity is deemed to be an offer of a debenture which is type of security. An entity offering debentures is required to prepare and register a prospectus with MAS. Prospectus may not be required to be registered if the peer to peer lending platforms avails themselves one of the following exemptions:
- Small offers: offerors may make personal offers of securities, up to $5 million within any 12-month period, without a prospectus subject to certain conditions.
- Private placements: offers of securities to no more than 50 persons within a 12-month period may be exempted from the Prospectus Requirement subject to certain conditions
- Institutional investors: offers of securities to institutional investors are exempted from the Prospectus Requirements.
- Accredited investors: offers of securities to accredited investors may be exempted from the Prospectus Requirements subject to certain conditions
In addition to the prospectus requirements, peer to peer lending platforms that facilitates the offer of debentures (even if the peer to peer lending platform does not itself offer the debentures) may be considered to be carrying on the business of the regulated activity of “dealing in capital market products”. The peer to peer lending platform would be required to hold a Capital Market Services Licence under SFA. Peer to peer lending platforms may also be required to hold a Financial Advisers licence if they are deemed to be providing financial advice to investors who wish to purchase the securities listed on the peer to peer lending platform.
MAS has reduced the base capital requirements for peer to peer lending platforms and is currently at S$50,000. MAS has taken into considerations that such peer to peer lending platforms are lower risk in nature given that they are not handling, holding or accepting customer monies, assets, or positions and do not act as principal in transactions with investors.
As mentioned above, peer to peer lending platforms who are fund raising with the public must register their prospectus with MAS. If the peer to peer lending platforms are availing themselves of the exemptions such as private placement or accredited investor offer, peer to peer lending platforms must ensure the offers made are limited in scope and not subject to mass solicitation. Offers made to accredited investors are subject to specified conditions, including a restriction on any advertisement on the offer.
In general, publication of information on an offeror and the terms of the offer on a unrestricted platform ( accessible by anyone) would be deemed to be an offer made to the public and therefore would require prospectus to be registered with MAS. However, if the peer to peer lending platforms are able to conduct due diligence to confirm that the investors who have access to the platform are within the scope of the prospectus exemption (e.g accredited investors) providing information on the offeror and the terms of the offer will not be deemed to be a breach.
How can Argus (now Waystone Compliance) Assist?
We, at Argus Global (now Waystone Compliance), are a team of consultants who specialize in regulatory compliance for financial institutions. We assist to do the following:
- Provide regulatory advice on whether MAS licence is required for the business model that you intend to operate
- Assist to apply for MAS licence
- Assist to put in place appropriate compliance policies and procedures to operate as a regulated financial institution in Singapore
- Assist to provide ongoing compliance advisory support to regulated peer to peer lending platforms
Please reach out to us for an initial discussion at firstname.lastname@example.org.
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