Crowdfunding rules to enhance consumer protection

A SENIOR central bank official has thrown his support to moves by the Securities and Exchange Commission (SEC) in drafting rules for crowdfunding, saying that regulating the digital platform would not necessarily curtail its expansion in the Philippines.

BSP Deputy Governor Nestor A. Espenilla, Jr. said the central bank backs the SEC’s decision to craft regulations for fund-raising activities done online as a move to enhance consumer protection, with ongoing collaboration between the two regulators through the inter-agency Financial Sector Forum (FSF).

“FSF serves as an important coordination platform for financial sector regulators. While the FSF has yet to discuss SEC’s draft crowdfunding rules, already BSP welcomes SEC’s move,” Mr. Espenilla said in a recent e-mail interview.

“Regulating the market even at this nascent stage will not necessarily preempt growth. On the contrary, it could help boost public awareness and confidence

and spur growth,” the BSP official said.

In October last year, SEC chairperson Teresita J. Herbosa said rules covering crowdfunding are being prepared by the regulator, which is seen to allow entrepreneurs and start-up businesses to tap the new fund-raising venue while also deterring scam operators.

The rules would also require crowdfunding service providers with projects in the Philippines to secure a license from the SEC, as their activity is considered as issuing equity or other forms of return of investment to the public.

Crowdfunding is currently conducted often through dedicated Web platforms. The World Bank has identified four main types of alternative financing via donations, rewards, equity, and lending.

The BSP has since been studying whether it should step in to regulate peer- to- peer lending platforms, which online users can use as an alternative way to generate funds instead of securing bank loans or turning to the capital markets for credit.

However, Mr. Espenilla has said that no decision has been reached as far as BSP is concerned, although consultations with stakeholders are ongoing.

“The BSP stands ready to support crowdfunding, particularly on its potential to drive financial inclusion. Underserved segments, like farmers and small entrepreneurs could benefit from alternative source of financing provided by these innovative platforms,” the BSP official added.

“We will likewise continue to monitor growth trends and emerging signs of unfair and fraudulent practices in the market.”

About 4,700 live projects from the Philippines are featured in known crowdfunding gateways which is seen worth $2 million, Mr. Espenilla said in June 2016.