Response Paper to the Financial Services and the Treasury Bureau’s Public Consultation on Regulation of Crowdfunding ActivitiesJulius Yam
Executive Summary: The adoption of new technologies like crowdfunding in commerce and for social and political purposes has created new opportunities as well as risks. Crowdfunding fosters innovation, but can also be used for unlawful or illegitimate purposes.
This paper responds to the Financial Services and the Treasury Bureau’s (“FSTB”) public consultation on regulation of crowdfunding activities, and considers whether it is necessary to introduce a new regulatory regime for crowdfunding. It argues that existing laws are capable of addressing most ⎯ if not all ⎯ of the risks that crowdfunding activities pose. Even if the government decides that regulatory intervention is necessary, this paper suggests that its approach should be guided by principles of regulatory certainty, minimizing user inconvenience and administrative feasibility. This enables the benefits crowdfunding offers to be maintained.
The paper identifies issues raised by the FSTB’s proposal for regulating crowdfunding (“the proposal”) that need to be addressed. It makes six broad recommendations which are summarized as
1. Identifying the specific risks posed by non-investment-based crowdfunding in Hong Kong and developing solutions that mitigate those risks [paras 14-16].
2. Narrowing the scope of the proposal, including, for example, by [paras 24-26]:
a. Covering only fundraisers that have Hong Kong bank accounts or are companies or other entities registered in Hong Kong.b. Targeting campaigns that are expected to raise over a certain amount.c. Broadly interpreting the exceptions proposed.
3. Clarifying the definition, the scope of responsibility and consequences of online crowdfunding platforms under the proposal [paras 31-33].
4. Streamlining the approval system’s procedures [para 44], for example, by:
a. Simplifying application processes.b. Making assistance from regulators readily available.c. Creating reasonable time frames for the application process.
5. Providing sector-specific agencies with regulatory powers instead of setting up a centralized approval system [paras 45-46].
6. Setting aside the issue of crowdfunding for litigation purposes [para 50].
We hope that this paper provides a constructive platform for all stakeholders involved to formulate an approach that best meets the interests of Hong Kong as an international financial center.