PROPOSED RULES AND REGULATIONS ON CROWDFUNDING

the SEC as a corporation and must have at least P50,000 equity, must submit: (i) Registration Statement with information on the principal place of business, legal status and disciplinary history, business activities and types of compensation received by the funding portal, and Web site address/es; (ii) account opening and disclosure rules; and (iii) business conduct rules.

Entities which mediate in the offer or sale of CF securities will be required to file an application with the SEC and to register as Intermediary.

Only securities brokers registered Section 28 of the SRC, investment houses as defined under the Investment Houses Law, and funding portals registered in accordance with Section 30 of the Rules, are eligible to file an application with the SEC and engage as Intermediary in CF transactions.

To register as Intermediary, eligible entities must signify their intention to conduct activities of CF Intermediary and must be able satisfy the criteria set under the Rules.

REGULATORY FRAMEWORK FOR INTERMEDIARIES

Under the Rules, Intermediaries will be required to: (i) Provide investors educational materials; (ii) Take measures to reduce the risk of fraud; (iii) Provide communication channels to permit discussions about offerings on the platform; (iv) Comply with maintenance and transmission of funds requirements; and (v) Comply with completion, cancellation and reconfirmation of offerings requirements.

ONGOING REPORTING REQUIREMENTS

Issuers will be required to periodically file with the Commission an annual report on all its CF transactions, the relevant CF Forms within five (5) business days: (i) after the Issuer reaches 50% and 100% of the target offering amount; (ii) after the Issuer accepts proceeds in excess of the target offering amount; and (iii) after the offering deadline, a disclosure on the total amount of securities sold in the offering.

Intermediaries will be required to keep and maintain records related to CF transactions, which include information related to investors and issuers, records of all communications that occur on or through its platforms, and all daily, monthly and quarterly summaries of transactions effected through the funding portal.

BURDENSOME AND HIGH COST OF COMPLIANCE

As opposed to traditional, exempt, private placement transactions which require one-time submission of Form 10.1 (Notice/Confirmation of Exemption) with the SEC, Issuers in CF offerings would have to continuously comply with the Ongoing Reporting Requirement and incur costs for the same.

Considering the heavier regulatory burdens and higher compliance costs, in conjunction with the P10,000,000 cap on the amount that can be raised through CF, the rules may create an unintended consequence of disincentivizing companies from using CF.

Understandably, the SEC has placed the foregoing requirements to protect the interest of the ordinary investors. However, the rules may have to be revisited to achieve the original intention of providing simple and alternative financing access to start- up companies, without sacrificing the interest of the investing public.

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes, and not offered as, and does not constitute, legal advice or legal opinion.