Development and Regulation of P2P Lending and Equity-based Crowdfunding in Hongkong

Guest

This is a guest post by Hungyi Chen, Ph.D. candidate at the Graduate School of Law, Nagoya University. He is researching alternative finance in East Asia.

1. The recent development of online alternative finance

Given the recent trend that Fintech is rapidly growing in the world, in order to maintain the role of international financial center, the financial authority of Hong Kong has been aware of issues relating to Fintech industry[1]. On November 13th, 2015, Stored Value Facilities Payment Systems, such as online stored payment business as PayPal, is allowed to operate by non-bank[2]. This is a milestone for Hong Kong including non-bank of operating business highly relevant to conventional bank.

In order to enhance the development of startups in Hong Kong, financial technologies (Fintech) are emphasized by the authority since the investment of Fintech is a target of many venture capitalists[3]. Nevertheless, compared with other jurisdictions in Asian countries, which already lightened entry requirement to encourage non-bank for engaging business of equity-based crowdfunding, such as Japan, Korea, Malaysia, Taiwan, and Thailand, the entry requirement of Fintech, especially alternative finance may be stricter in Hong Kong.

Until now, there is still no equity-based crowdfunding platform established in Hong Kong. However, the huge demand from capital market gradually leads the development of crowdfunding in Hong Kong, especially debt-based crowdfunding, which is also known as Peer-to-Peer Lending. Currently, there are 4 major peer-to-peer lending platforms, including BestLend, GoLend, Monexo, and WeLend.

2. Relevant industry background

With unique selling factors, the peer-to-peer lending platforms may have a rapid growth in the near future. On one hand, from viewpoints of investors, the deposit rates of savings are from 0%~0.001%[4]. Even the deposit rates of fixed deposit of 12 months are from 0.15%~0.2%[5]. Additionally, inflation rates are around 4% continuously in 2013 and 2014[6], which means the real interest rate may be negative in Hong Kong. Accordingly, there are strong incentives for investors to vitalize their capital.

On the other hand, from viewpoints of borrowers, there are two fundraising channels for loans, including banks (Licensed Banks, Restricted License Banks, Deposit-taking Companies) and Money Lenders. Since the financial authority restricted the mortgage market of banks to prevent a real-estate bubble, it is difficult for borrowers to get the loan amount they need from banks by mortgage. As a result, they turn to Money Lenders as an alternative opportunity. Although the interest rates of Money Lender are generally higher than banks, compared with banks which normally take 1-6 weeks for examining procedure, the process of Money Lender is more simplified[7]. Continue reading →

Overview of the Regulatory Framework for P2P Lending and Equity-based Crowdfunding in Singapore

Guest

This is a guest post by Pawee Jenweeranon, a graduate school student of the program for leading graduate schools – cross border legal institution design, Nagoya University, Japan. Pawee is a former legal officer of the Supreme Court of Thailand. His research interests include internet finance and patent law in the IT industry.

1. Introduction

In the recent years, it is inevitable that the financial technology or Fintech takes the significant role toward the evolution of financial services industry in this region. In other words, Fintech normally be used to improve the financial industry services.

In 2015, the Monetary Authority of Singapore (hereinafter referred to as “MAS”) has committed two hundred twenty five million Singapore Dollar (around 166 million USD) to support the development of Fintech industry for the startup ecosystem in the upcoming years[1]. This is a good reflection of the significance of the financial technology or Fintech development in Singapore.

From the economic perspective, Small and Medium Enterprises (hereinafter referred to as “SMEs”) are important part of Singapore’s economy. SMEs account for 99 percent of all registered enterprises in Singapore[2]. From this reason, enhancing the competitive capacity of Singapore SMEs is essential for Singapore economy development.  Even almost all of the SMEs in Singapore are supported by the Governmental Enterprise Development Agency and Centers[3], (more than 100,000 SMEs got funding support by the Singapore government[4]); however, internet financial technology was also proposed as an alternative mechanism for enhancing the competitiveness of Singapore SMEs in the recent years[5].

 

2. Regarding Peer to Peer Lending


2.1 Background
Generally, there are many peer to peer lending platforms in Singapore; however, they normally lend money to businesses rather than individuals due to the strict regulation for money lenders. The additional limitation on lending to low-income borrowers[6] who are Singaporean citizens or permanent residents which is another requirement should be considered by the lenders.

In general, money lending in Singapore is mainly regulated by the Moneylenders Act 2010 and the Moneylenders Rules 2009. For the Moneylenders Act 2010, due to the main purpose of this act is to develop consumer protection mechanism to protect borrowers of small amount loans[7], this is the reason why the act provides stringent limitation for moneylenders to operate their business. This is another key different of money lending law of Singapore compared to other countries in Asia such as Hong Kong which focusing more on lending activity[8]. Briefly, the act requires moneylenders to hold the Moneylenders license with obligations and limitations for licensee[9].

In Singapore, even there are strict regulations in the existing law relating to a money lending business; however, there is the legislative effort of the Singapore government to address the issue regarding Securities-based Crowdfunding, which can reflect the understanding of the Singapore government toward the development of Financial Technology (Fintech) and the supporting regulatory framework.[10]

2.2 The Regulatory Framework for Peer to Peer Lending Business

From the document published by the MAS on Lending-based Crowdfunding – Frequently Asked Questions (FAQs)[11], generally, the operation of P2P lending is restricted by MAS under the Securities and Futures Act (Cap. 289) (SFA) and the Financial Advisers Act (Cap. 110) (FFA).

Specifically, the P2P lending business needs to prepare and register a prospectus with MAS in accordance with Section 239(3) of the SFA. In addition, not only the registration of the prospectus but also the P2P lending platform need to follow the licensing requirements, particularly, the P2P lending business which fall within the scope provided by MAS needs to hold a Capital Market Services (CMS) license. Continue reading →

Lendico and PostFinance Launch Joint Venture in Switzerland

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PostFinance one of the largest five retail banking institutions in Switzerland will partner with Lendico to launch joint venture Lendico Schweiz, which will facilitate loans to SMEs in Switzerland.

From the last quarter of 2016 onwards, the company will facilitate crowdfunding for small and medium-sized enterprises (SMEs) in Switzerland. It is entering the market in close collaboration with PostFinance, a subsidiary of postal carrier Schweizerische Post.

Together the partners would like to establish a new form of SME financing in Switzerland. The aim of the joint venture is to provide the numerous Swiss SMEs with a modern alternative to traditional bank financing. The two partners are contributing their complementary expertise in customer contact and the entire lending and repayment process to the joint venture.

Sources say PostFinance was barred by regulation to directly lend to SMEs and had to find a third party partner to enter this market.

‘With 110 years of experience in Swiss banking services and around three million customers, we can think of no better partner than PostFinance for our entry into the Swiss market. As part of the continued expansion of an international credit marketplace, this joint venture represents a significant step in our business development,’ says Dr Dominik Steinkühler, co-founder and managing director of Lendico.

Hansruedi Köng, CEO of PostFinance, is delighted to be able to join forces with Lendico, a partner which has established itself and enjoyed success internationally in a rapidly expanding industry. ‘Our vision for this cooperation is to take crowdlending in Switzerland from niche status to the mass market. The combination of Lendico’s innovative capacity and our structures in Switzerland offers the best conditions for Lendico Schweiz AG to become a market leader in the future.’

Spain: CNMV authorizes MytripleA & Lendix as crowdlending platforms

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The Spanish Securities Exchange Commission (CNMV, Spain’s financial regulator) has authorized MytripleA as a Platform for Participatory Financing, the formal name for a p2p lending platform. This is one of the first actions to implement Law 5/2015 Promotion of Corporate Financing. MytripleA already benefits from a Payment Institution license (which can be passported within the EU) granted by the Bank of Spain, which authorizes MytripleA to make loan disbursements and receive loan instalments within the regulatory environment for banking payments. This is an additional regulatory requirement in Spain, which is not required by other European countries.

With this new authorization, MyTripleA becomes the first crowdlending platform to have both of the required authorizations in Spain. Competitors entering Spain, will not be able to use the the so-called passporting provisions from a financial regulator outside of Spain and will need to apply for a Platform for Participatory Financing license before being able to operate in compliance with Spanish regulations Law 5/2015 Promotion of Corporate Finance provided a unified legal framework for crowdlending platforms and securitized funds, and made CNMV responsible for their creation, authorization and supervision. Crowdlending has experienced rapid growth across Europe. The Spanish market last year grew 266% according to the website P2P-Banking.com. Within the new regulatory framework and with the supervision of CNMV, a greater degree of awareness of the alternative financial services market is expected.

French Lendix announced that it received its formal CNMV accreditation to operate as a P2P lending platform in Spain. The Spanish entity will be the first Lendix international market to open. It will target financing of credits to SME, for amounts ranging from 30,000 to 2,000,000 Euro, duration of 18 to 60 months and at interestrates comprises between 5.5% et 12%. Companies presented on the platform will be selected and analyzed by Lendix credit analysis team and will need to generate a turnover of at least €400’000. Non accredited private investors* will be able to lend up to 3,000 Euro per project with a total maximum yearly amount of 10,000 Euro, while no limit will apply to accredited private investors nor institutional investors. The launch of Lendix’s spanish platform is scheduled for Q4 2016.

Equity crowdfunding platform Crowdcube also received authorization.

Continue reading →

Friday Fun: Bondora’s Personalized Investment Video

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Just before the weekend Bondora sent me an email with a personalized investment overview video (click here to see mine; I was not able to embed it directly here in the blog). The video page encourages sharing via social media (Google, Linkedin, Facebook, Twitter), so obviously an aim is to aid in investor marketing. In future I might need to spend less effort on my personal portfolio reviews and post the video instead (just kidding). The highlighted return figure is higher than my own calculations, but I did achieve a high return on Bondora over the past years.

Have you seen other attempts on viral marketing via investors by p2p lending marketplaces? Let me know in the comments, please.

EDIT: Succeeded in embedding the video now:

In the Case of Death

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‘What happens when I die’ is a concern occasionaly voiced by investors. Investments in p2p lending will be inherited like any other assets. The concern for the investor is how readily their beloved ones will be able to access the funds. I scanned the FAQs of several p2p lending marketplaces but this is not one of the topics addressed. I then reached out to the marketplaces asking for information.

Ratesetter, Assetz Capital and Estateguru pointed out that the procedures are very similar to those applied by other financial institutions.

Assetz Capital, after being notified about a death of an investor by the next of kin or a solicitor acting on behalf of the deceased estate will mark the account as deceased and suspend all marketing emails. The next step is requesting proof of death, most commonly provided in form of a death certificate and grant of probate. In the event that the decision taken is to liquidate the account then all account holdings are put up for sale. Any funds which can be released immediately are sent to the appropriate recipient and a monthly sweep of the account is carried out indefinitely until such time as all funds have been liquidated and released to the appropriate recipient.

Luke O’Mahoney of Ratesetter explained: ‘If an investor dies, we work with the next of kin to establish how they would like the account to be dealt with. Generally they would either use our Sellout function (effectively liquidating their investment) or they would allow the account to run down over time – of course we assist the next of kin or executor with this process’.

Funding Circle CE answered: ‘If the account is transferred the inheritance would need to be proven and the account would be manually transferred. The heir can then decide what to do with the portfolio.’

Martins Sulte, CEO of Mintos indicated that there are numerous different situations as the account is inherited according to the respective laws of the country where the investor resides.

In Estonia all matters of inheritence are usually dealt with by a notary office or a solicitor, says Aleksei Kurov of Estateguru. He describes ‘[the] notary or solicitor sends requests to different registers: Property Register, Companies House including all credit/finance institutions to clarify if the person in question had any obligations or deposit/investments accounts opened and what are obligations or funds are connected to these accounts. … When all heir/heirs are clearly identified and the amount of inheritance is also clarified then Notary Office is making a registry entry to an Inheritance Register. This entry will specify the list of heirs and their share of the inheritance. EstateGuru will have an information about the death and consequent inheritance procedures when we are contacted by Notary or Solicitors office. Then we will check with Inheritance Register (if the investor is from Estonia) or with according local institution to confirm this information. We will also seek independent confirmation from his Bank, which was used to transfer funds to our account. Any monetary pay-out or change the information of the account owner is possible only after we receive an official and apostilled confirmation from notary office, solicitors and/or double check this information with available local Inheritance Registry. If information we received is in local language, we will request that it is translated into English and apostilled. If we are satisfied with the identity confirmation and the legal rights heir/heirs then we will follow instructions from them, to make necessary changes on the account, close it or do the pay-out of available funds.Already invested funds will be repaid at the project maturity.’ Continue reading →