The Securities and Exchange Commission (SEC) has adjusted its proposed crowdfunding regulations, in response to the input of relevant stakeholders in the sector. Despite supposed input from relevant stakeholders, major talking points remain the same.
Recall that on March 30, the SEC released draft regulatory guidelines for Nigeria’s growing crowdfunding industry. Prior to those regulations, raising money through such means was the exclusive preserve of public companies listed on the Nigerian Stock Market.
However, a number of these platforms found a loophole by incorporating outside Nigeria while serving the Nigerian market.
SEC’s landmark regulatory draft brought in a reality check as it applied to both local and foreign companies.
In that document, the SEC stated that crowdfunding portals will now require a paid-up capital of ₦100 million ($256,000), amongst other registration requirements.
Also, the maximum amount which could be raised through a crowdfunding portal was not to exceed ₦100 million ($256,000) by a medium enterprise, ₦70 million (~$180,000) for small enterprises, and ₦50 million (~$128,000) for micro-enterprises.
According to the SEC, the total fees payable to parties to a crowdfunding issue shall not exceed 2% of the total funds raised by the portal.
The SEC also restricted retail investors from investing more than 10% of their annual income in a calendar year.
In the updated guidelines, the SEC makes a number of changes in terminologies and registration requirements for crowdfunding portals.
However, the ₦100 million ($256,000) paid-up capital requirement is still retained as a registration requirement for crowdfunding portals.
As Francis (not real name) the CEO of a crowdfunding startup explained, such a capital requirement would limit most startups and complicate the crowdfunding process when they trade through intermediaries.
Those that can not afford the paid-up capital requirements might have to trade as MSMEs, where what they can raise is limited. But then, the optics behind this are daunting.
Why is this? Well, an analogy could help.
Two agriculture-based crowdfunding startups (Let’s call them A and B) connect different farmers to prospective investors. Platform A has the SEC’s minimum requirement, but Platform B, being smaller, does not.
Platform B would then have to place the trade of its farmers on Platform A, follow all its guidelines and register all its farmers with the bigger startup.
Interestingly, the SEC has cancelled the provision that required only registered dealers and brokers to register as a crowdfunding intermediary.
But there’s still no update on how those looking to register will show evidence of the paid-up capital requirement. As explained earlier, if it doesn’t have to sit in an escrow account, then this might be a loophole for some startups.
Francis said that most crowdfunding platforms were not consulted in the SEC’s initial draft, but despite the stakeholder’s input in the recent update, a number of these possible pain points remain.
Fortunately, the Commission is still accepting input from stakeholders, and there will surely be more updates in this space in the coming months.
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