While some may be wondering when South Africa will get its own regulations governing equity crowdfunding, the authority that oversees financial regulations in South Africa appears to be in no rush to draft rules — having recently completed yet another internal paper on crowdfunding.
The latest — a position paper on crowdfunding regulations — follows the drafting of a research paper by the Financial Sector Conduct Authority (FSCA) on equity crowdfunding regulations that the body (when it was still known as the FSB) completed in 2017.
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The lack of regulation has been cited by some in the sector as the reason why equity crowdfunding has not taken off in South Africa like it has in more advanced economies.
Entrepreneurs are wary to set up a platform if they are later found to be in breach of the financial regulations. Specific crowdfunding regulations may therefore help create more certainty.
In contrast equity crowdfunding is already regulated in emerging markets such as Brazil, Malaysia and Thailand, among others.
Only one platform, Uprise.Africa, operates in the country. It officially launched after being told by the FSB that the platform does not fall foul of the Collective Investment Schemes Act (see this story).
The FSCA said the position paper on equity crowdfunding would not be released to the public
FSCA spokesperson Tembisa Marele told Ventureburn yesterday that the position paper was drafted in consultation with equity crowdfunding platforms, but would not be released to the public.
“The research we conducted was aimed at giving us insight on how crowdfunding is regulated in other jurisdictions and what legislation would govern crowdfunding activities in SA.
“After much consultation with equity crowdfunding platforms and assessments of various business models we drafted a position paper for internal consultation regarding the most appropriate regulatory and supervisory framework for equity crowdfunding.
“This was not a public document but was to allow us to consider the appropriate legislation that will govern the activities referred to,” she said.
Marele said during the FSCA’s initial assessment (when it was still called the FSB) the authority liaised with the Africa Crowdfunding Association and various other platforms during 2017 to assess their business models (see this story).
“This allowed us to draft the internal position paper we refer to above. The purpose of the meeting was to also communicate the decision of the FSCA regarding the regulation of crowdfunding platforms,” she explained.
At present crowdfunding platforms rendering intermediary services in South Africa in respect to financial products defined in the FAIS Act are required to be licensed in terms of the said legislation.
She said those who attended the initial meeting last year, were subsequently invited to a workshop held on 23 August 2018, where FSCA officials explained the FAIS licensing framework and what the implication of the Financial Intelligence Centre (FIC) Act would have for crowdfunding platforms.
In respect to peer-to-peer lending, Marele said services that relate to the provision of credit would form part of the FSCA’s new mandate and that is subject to a detailed memorandum of understanding with the National Credit Regulator.
Marele said in the interim the intergovernmental fintech working group — made up of SA Reserve Bank, FSCA and the National Treasury, among others — is looking into the most appropriate approach to peer-to-peer lending platforms.
Read more: SA equity crowdfunding site Uprise.Africa launches after response from FSB
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Read more: Q&A: FSB’s Caroline da Silva clarifies 30 June deadline on crowdfunding
Read more: South Africa’s FSB to rule on crowdfunding by June 30
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