FSC Korea to Enhance Regulatory Framework for Crowdfunding

Source: Regulation Asia Editors, Regulation Asia 2020-06-17

SMEs will be allowed to raise funds through crowdfunding platforms, and the capital raising limit will be raised, among other enhancements to the existing framework.

South Korea’s FSC (Financial Services Commission) has decided to ease its regulations on crowdfunding, in a bid to increase access to capital for small and midsize companies.

To date, crowdfunding has exclusively been available to start-ups and venture companies. Under the new rules, unlisted small and midsize companies will also be allowed to raise funds through crowdfunding platforms.

The maximum investment businesses can raise by crowdfunding will also be raised, from KRW 1.5 billion currently to KRW 3 billion, and restrictions on advertising will be lifted.

The annual investment limits imposed on retail and qualified institutional investors will be doubled to KRW 20 million and KRW 40 million, respectively.

Intermediaries will themselves be allowed to invest in companies issuing securities on crowdfunding platforms, and securities brokers will also be encouraged to participate in crowdfunding investment.

Secondary market activities will be promoted through KRX Start-up Market (KSM) and KOSCOM’s unlisted stock exchange platform, and policy banks will promote crowdfunding through their investor relations programmes.

The government will additionally create a KRW 20 billion fund – known as “K-Crowdfund” – to exclusively support crowdfunding with seed capital and follow-up investment.

Successful crowdfunded companies will also be granted access to a total KRW 150 billion in loans from state-owned financial institutions over the next five years.

To strengthen investor protection, the FSC will prohibit companies that have a history of fraud or criminal convictions from issuing securities for crowdfunding, and step up monitoring and supervision of illegal and unfair sales practices by intermediaries.

With the improved regulatory framework, the FSC says crowdfunding will grow into a KRW 120 billion a year industry by 2025.

FSC Korea to Enhance Regulatory Framework for Crowdfunding

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