The Securities and Exchange Board of India (SEBI) is reportedly in the process of finalising crowdfunding norms. As per reports, the regulatory body will likely allow institutional lenders and large firms to invest money through this channel.
However, these entities will be required to seek the SEBI’s approval before accessing crowdfunding platforms. To expedite the process of finalising regulations, the organisation has set up a Committee on Financial and Regulatory Technologies (CFRT).
According to the soon-to-be-instated guidelines, information about borrowers and transactions will be available only to investors and not the public at large.
A source close to the development stated, “The idea is to help genuine, high-growth-potential entrepreneurial activities with a wider access to fundraising and not only a select set of angel investors, who may be providing finance to such companies but also often dictate the terms of their businesses and restrict the entry of other potential large investors in the funding plan for growth.”
To protect investors’ interests, the SEBI is also looking at specifying a minimum threshold for all transactions in terms of stake purchases. Furthermore, no single lender will be allowed to gain possession of more than 25% of the investee firm, Livemint reported quoting sources.
For all corporate decisions, crowdfunding platforms will have to secure the approval of all shareholders, and will also be required to inform the SEBI of the decision. Information about company business and investors will be disclosed only to concerned parties.
According to one source, access to these crowdfunding portals will be password-protected.
In the case of larger firms, the SEBI is considering exempting crowdfunding activities from the private placement norms under The Companies Act. Aimed at ruling out concerns of these bodies acting as unauthorised stock exchanges, the norms dictate that a private company with over 200 investors should make a public offer and list securities.
Many existing crowdfunding platforms operating in India boast of more than 200 investors. Lifting the cap on the number of institutional lenders will likely facilitate the growth of this fast-evolving sector.
SEBI has been deliberating over the need for crowdfunding regulations for nearly three years now. In June 2014, it released a consultation paper outlining the legal, structural and regulatory framework of crowdfunding activities in the country. Later in January 2015, it reportedly held talks with the government to issue guidelines on crowdfunding, as part of a move aimed at helping startups raise funds.
In June 2016, the market regulator released another consultation paper detailing norms for equity-based crowdfunding. Two months later, the SEBI cautioned investors about raising funds via unregulated electronic crowdfunding platforms.
In a separate development, between July 2017 and August 2017, the SEBI sent notices to a dozen angel networks, asking them to reveal details of their fundraising business. The aim, according to a SEBI official, was to “know the persons running these platforms, and whether these platforms are operating like exchanges; whether public issue norms are being sidestepped”.
(The development was reported by Livemint)