US financial watchdog sets rules to ease crowdfunding

GMT 05:54 2015 Saturday ,31 October

Arab Today, arab today US financial watchdog sets rules to ease crowdfunding

Crowdfunding model of alternative financing
San Francisco - AFP

The US Securities and Exchange Commission has passed rules to allow smaller companies to sell securities through crowdfunding platforms while giving investors greater protections.

Crowdfunding -- the best-known example of which is probably the popular American website Kickstarter -- is a model of alternative financing that has developed enormously in recent years. But it has generally not been used to offer and sell securities.

Startup companies often use it to offer Internet users a chance to buy a product still in development. If demand is strong enough, they are able to finance production.

The SEC rules, which were adopted in a three-to-one vote, are to take effect next year. They will make it possible for web users to purchase shares in smaller companies in a way much like that used by big institutional investors specializing in capital risk, albeit on a much smaller scale.

"There is a great deal of enthusiasm in the marketplace for crowdfunding," SEC Chairwoman Mary Jo White said in a press statement, adding that the new rules would "provide smaller companies with innovative ways to raise capital and give investors the protections they need."

The new rules will allow a startup to raise up to $1 million a year by offering shares through a crowdfunding platform that must be registered with the SEC.

The rules aim to protect small-scale backers by limiting the amounts they can invest in this way -- with variable ceilings depending on their income or net worth -- by requiring the platforms to take steps to reduce fraud risks.

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