The International Organization for Securities Commissions (IOSCO) has released a statement on online investing and its existing and potential legal frameworks, after having surveyed twenty three securities commissions around the world on the subject.
IOSCO has launched a fact-finding survey this year, with the double aim of enhancing its understanding of developments in members current or proposed investment-based crowdfunding regulatory programs and of highlighting emerging trends and issues in this area. Twenty three financial authorities replied to the survey, including the US and UK’s Securities Commissions.
The report that contains the outcomes of the survey highlights the fact that all regulatory programs are rather young and that, despite a few similarities,they display many diversities in how risks are addressed and mitigated.
IOSCO identifies the main risks related to crowdfunding activities, which include heightened financial risks of early stage fundraising companies, risk of fraud, money laundering/terrorist financing, platform failure, illiquidity of the market and information asymmetry, in addition to common investment risks such as data protection and conflict of interest.
After having observed all respondents’ approaches to such inherent risks, IOSCO draws attention in its statement to the following measures that some national financial authorities adopted or are planning to adopt:
• customizing entry, registration, or licensing requirements for funding portals;
• setting disclosure requirements for issuers and funding portals;
• limiting the services that may be provided by crowdfunding platforms;
• requiring investor education and/or statements signed by investors acknowledging their understanding of risks;
• limiting the size of the investments made by an individual in each offering and in a given timeframe; and
• requiring the appointment of a third party custodian to hold investor assets.
Furthermore the report points out the cross-border risk, which characterizes digital investing as it happens on the internet, and acknowledges that current measures adopted against may also hinder the international potential of this financial tool.
The purpose of IOSCO’s report and statement is not to propose a common international approach to the oversight or supervision of crowdfunding at this stage, but to simply raising awareness about all the risks investors may face and how these are being addressed internationally.
References
OICV-IOSCO (2015). Crowdfunding Survey Responses. https://www.iosco.org/library/pubdocs/pdf/IOSCOPD520.pdf
OICV-IOSCO (2015). Statement on Addressing Regulation of Crowdfunding. https://www.iosco.org/library/pubdocs/pdf/IOSCOPD521.pdf
Photo credit to Cabezadeturco.
The report that contains the outcomes of the survey highlights the fact that all regulatory programs are rather young and that, despite a few similarities,they display many diversities in how risks are addressed and mitigated.
IOSCO identifies the main risks related to crowdfunding activities, which include heightened financial risks of early stage fundraising companies, risk of fraud, money laundering/terrorist financing, platform failure, illiquidity of the market and information asymmetry, in addition to common investment risks such as data protection and conflict of interest.
After having observed all respondents’ approaches to such inherent risks, IOSCO draws attention in its statement to the following measures that some national financial authorities adopted or are planning to adopt:
• customizing entry, registration, or licensing requirements for funding portals;
• setting disclosure requirements for issuers and funding portals;
• limiting the services that may be provided by crowdfunding platforms;
• requiring investor education and/or statements signed by investors acknowledging their understanding of risks;
• limiting the size of the investments made by an individual in each offering and in a given timeframe; and
• requiring the appointment of a third party custodian to hold investor assets.
Furthermore the report points out the cross-border risk, which characterizes digital investing as it happens on the internet, and acknowledges that current measures adopted against may also hinder the international potential of this financial tool.
The purpose of IOSCO’s report and statement is not to propose a common international approach to the oversight or supervision of crowdfunding at this stage, but to simply raising awareness about all the risks investors may face and how these are being addressed internationally.
References
OICV-IOSCO (2015). Crowdfunding Survey Responses. https://www.iosco.org/library/pubdocs/pdf/IOSCOPD520.pdf
OICV-IOSCO (2015). Statement on Addressing Regulation of Crowdfunding. https://www.iosco.org/library/pubdocs/pdf/IOSCOPD521.pdf
Photo credit to Cabezadeturco.
 | About the author - Irene Tordera Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives. During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem and she works also for the European Crowdfunding Network. |
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