FSC to develop crowdfunding rules
THE Financial Services Commission (FSC) is planning to develop rules for crowdfunding and depository receipts — investment opportunities that are seemingly creeping onto local shores.
Crowdfunding enables individuals or businesses to raise sizeable sums of money from strangers across the world to get a project or business going.
Some sites even facilitate peer-to-peer microlending.
Typically, donors get certain incentives for their support, while business- oriented crowfunding sites offer investors a stake or equity in the company.
A depository receipt is a transferable security, usually in the form of equity that is issued by a foreign publicly listed company and traded on a local stock exchange.
But these aren't available locally as yet.
A company may opt to issue a depository receipt to obtain greater exposure and raise capital in the world market, while an investor who buys into it will have a global portfolio.
It's still early days yet, so the regulatory body hasn't set a timeline for the implementation of guidelines for these new investments locally, and it has not yet examined how it would enforce these rules.
"Firms have approached us with crowdfunding and they want to ensure that they aren't violating any legislations," said Sonia Nicholson, senior director securities, FSC. "As you know, these can be considered as securities. They have given us their proposals and we will formulate some guidelines to send to our legal team and take it from there."
One company, Jamaica National Building Society (JNBS) launched a local crowdfunding site, but it's not clear which institution has its eyes on depository receipts.
"I can't name who has approached us, just to say based on the proposals — we have to develop rules because these things will affect local investors", said Nicholson.
FSC held a seminar to update the securities industry on the implications of the amended Securities Act (2013) on Wednesday at the Jamaica Pegasus Hotel. The act was amended to allow some provisions to be enhanced and introduce other new requirements as well as contribute to efficient regulation.
"The importance of the securities sector cannot be overestimated with funds under management of $924 billion as at December 31, 2013, when compared to the banking sector with deposits of $697 billion," said Nicholson, adding that the sector represented a 28 per cent share of the finance and insurance services industry and three per cent of Jamaica's real GDP in 2012.
The international standard- setting body for the FSC, the International Organisation of Securities Commissions (IOSCO) figures that there may be a need for the international harmonisation of the regulatory requirements due to the possible cross-border nature of crowdfunding, which has the potential to develop into a credible investment option.
The crowdfunding market has doubled each year for the last five years to an estimated US$6.4 billion in 2013, driven by annual growth in peer-to-peer lending. Equity crowdfunding is smaller and has grown at a slower pace, said IOSCO.
Other provisions in the amended Securities Act will allow the FSC in its thrust to be recognised by IOSCO, a necessary step towards enhancing the FSC's and Jamaica's image in the international arena.
"This is very important, and market players need to be mindful that as many of you extend your business relationships beyond our shores, it is important that you are regarded to be from a jurisdiction where the regulator is recognised," Nicholson told players in the securities industry.