Draft Rules and Regulations Governing Crowdfunding (CF)

November 24, 2017
SEC TO ISSUE RULES GOVERNING CROWDFUNDING
The Securities and Exchange Commission on November 21, 2017, authorized its
Markets and Securities Regulation Department to disseminate for public comment
the proposed SEC Rules and Regulations Governing Crowdfunding.
The is in response to recent financial innovation of raising funds for a venture of
projects or start-ups performed through internet platforms.
Crowdfunding generally refers to a method of fundraising whereby money is sourced
from a large number of individuals usually through an online platform. This method
allows investors to obtain access to investment opportunities and enables business
start-ups and small and medium-sized enterprises (SMEs) to access a new source of
funding for their investment and operations through the internet.
Typically, the crowdfunding model involves three parties:
1. The entrepreneur (or the project initiator): The individual who proposes the business
or the project;
2.The supporters: Individuals or groups of individuals, who are willing to fund or
support the idea or the project and;
3.The platform (or a moderating organization): A virtual marketplace that brings the
parties together for launching the project.
Supporters of the idea or project make their contributions or donations via online
platforms. Thereafter, the platforms coordinate and administer the fundraising
activities.
Generally, there are four (4) identified forms of crowdfunding:
a)Donation-based crowdfunding: individuals pool their resources to support a
charitable cause;

Office of the Commission Secretary
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b)Reward-based crowdfunding: individuals give money to a company in return for a
“reward”, usually a product produced by the company;
c)Lending-based crowdfunding: 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
d)Equity-based crowdfunding: individuals invest in shares sold by a company and
receive a share of the profits in the form of a dividend or profit distribution, subject to
the company’s discretion.
The SEC proposed rules will govern lending-based and equity-based
(securities-based) crowdfunding.
Features of the draft SEC Crowdfunding Rules
The Rules Governing Crowdfunding (CF) Market will:
Require registration and full disclosure of the issuer, intermediary (e.g. registered
persons, funding portal), and platform: Disclosure Requirements for Issuers; General
Requirements for Intermediaries; Registration of Funding Portals
Provide threshold as to the amount of funding to be raised thru crowdfunding: Total of
PhP 10 million within a 12-month period.
Provide prohibitions on advertising terms of offering: Prohibition on Advertising Terms
of Offering.
Provide measures to reduce risk of fraud and manipulation: Measures to Reduce Risk
of Fraud; Requirements with Respect to Transactions; Conditional Safe Harbor.
Restrict access to qualified investors: Investor Qualification.
Provide instructions on the provision and educational materials to investors:
Educational Materials.

(The draft SEC Rules and Regulations on Crowdfunding may be accessed via the
sec.gov.ph)
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