Proposals to enhance regulation of crowdfunding activities in Hong Kong

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Authored by: Ming Chiu Li and Alan Lo

The Financial Services and the Treasury Bureau (FSTB) has recently issued a consultation paper on proposals to enhance regulation of crowdfunding activities.

In the absence of a specific piece of legislation targeted at crowdfunding activities, these activities are currently subject to existing regulations in Hong Kong insofar as such regulations are relevant. For example, equity or debt crowdfunding activities are covered by the regulatory framework governing the offer of “securities” including the Securities and Futures Ordinance (Cap. 571) (SFO) and the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). As such, to regulate crowdfunding activities, the FSTB recommends new measures, which in its view will increase the transparency and accountability of these activities and prevent unlawful acts and safeguard the interests of those involved.

The key points of the proposals are:

1. A Crowdfunding Affairs Office (CAO) will be set up to centrally process and coordinate regulatory and administrative matters related to crowdfunding activities, and monitor the conduct of such activities.
   
   
2. Any person conducting public fundraising activities targeting individuals or entities of Hong Kong, or individuals or entities located in Hong Kong, will be required to make an application in advance to the CAO, regardless of their purpose or location.
   
   
3. The applicant will need to disclose information such as the personal data of the applicant, crowdfunding purposes, target beneficiaries, target fund size, use of proceeds raised, and the set-up and arrangement of the activities.
   
   
4. The CAO will consider the honesty, reputation and reliability of the applicant, as well as the potential risks brought by the fundraising to the public interests and national security.
   
   
5. There will be facilitation measures for widely recognised fundraisers and charitable crowdfunding projects which address urgent needs. Activities such as donations to religious bodies by their followers and recognised associations soliciting funds from members are also exempted from the proposed regulatory regime.
   
   
6. Further, the proposed regulatory regime will not apply to: (1) typical fundraising activities that fall within the ambit of the SFO, such as issuance of equity or debt securities, P2P lending involving collective investment schemes, fundraising activities that amount to “regulated activities” (as defined in the SFO) and private fundraising activities; and (2) banking activities such as deposit-taking and the making of loans and advances.
   
   
7. It will be a requirement for funds collected by crowdfunding in Hong Kong to be paid into a designated account with a local bank such that the bank will be responsible for matters such as reporting suspicious transactions, conducting due diligence on customers and record-keeping under applicable laws and regulations.
   
   
8. Law enforcement agencies will be empowered to cease unlawful crowdfunding activities and prosecute offenders.
   

These proposals may be seen as a step to add to the existing measures to safeguard public interest and national security. When these proposals become effective, some activities may become “unlawful crowdfunding activities”, for example, when no prior consent is obtained from the CAO, or the CAO and relevant law enforcement agencies have reasons to believe that the continued conduct of such activities will jeopardise public interests, public safety or national security.

The FSTB is inviting comments on the proposals, to be received no later than 20 March 2023.

Key Contacts

Ming Chiu Li

Partner | Financial Services

Email or call +852 2825 9752