Crowdlending sector seeks clearer rules

The Business Times has recently published (31 August 2015) an article on crowdlending platforms in Singapore wherein a “call has come in the absence of a regulatory framework for crowdlending and after what appears to be diverse interpretations of the Securities and Futures Act (SFA) – a few clauses of which the Monetary Authority of Singapore (MAS) says may apply to crowdlending platforms here, depending on their fund-raising methods”.

Here’s an excerpt of the article where MoolahSense was quoted:

Under Section 239, the SFA says borrowers raising funds on a crowdlending platform via the “public offer of securities” to Singapore investors must register a prospectus with MAS. Here, “securities” is defined to include “debentures”, which are (among others) debenture stock and bonds issued by a corporation but exclude (among others) promissory notes having a face value of not less than S$100,000 and having a maturity period of not more than 12 months.

Asked how these regulations have influenced their operations, MoolahSense said it has from day one been “fully compliant” with the latter promissory note exclusion, ensuring that all notes issued by its borrowers have a face value of at least S$100,000 and a maturity period of not more than 12 months, so as to overcome the prospectus requirement. It added it had obtained written confirmation from MAS that its crowdlending model also does not “deal in securities” and hence no CMS license is needed.

“(In the first place), the definition of ‘securities’ applied in each instance is incongruous,” said MoolahSense chief executive Lawrence Yong. “It becomes the responsibility of platform operators to ensure that they don’t structure crowdlending formats that may subject participants to potential illegality, as this poses risks to borrowers and may also lead to the loan contracts becoming unenforceable.”

He added: “As most borrowers on crowdlending platforms do not lodge prospectus, it is necessary for responsible operators to guide them to issue instruments that wouldn’t be otherwise construed as ‘securities’ under the SFA. This would safeguard investors from the risk of entering into contracts that may be deemed illegal and hence unenforceable.”

For all that, it is a different scenario at the other platforms, which facilitate a wider – and, according to Mr Yong, more attractive – range of financing options. These include loans under S$100,000 – with some as low as S$10,000 and having a maturity period of up to 24 months – as advertised on their websites. They too do not own a CMS licence.

Read the full article HERE.