SEC Releases Regulatory Framework for Crowdfunding

The Securities and Exchange Commission Nigeria (SEC), at the weekend unveiled an exposure draft of its regulatory framework for crowdfunding in the country.

The draft, if approved, proposes conditions under which private companies are permitted, “with the required structure and mechanism in place” to raise capital from the public through a process called crowdfunding.

According to a statement issued by the capital market regulator on the framework, the total fees payable to parties to a crowdfunding issue shall not exceed two per cent of the total funds raised.

The commission proposed that “the maximum amount which might be raised by a medium enterprise shall not exceed N100 million.

“The maximum amount which may be raised by a small enterprise shall not exceed N70 million, and the maximum amount which may be raised by a micro-enterprise shall not exceed N50 million.

“The limits set forth above shall not apply to MSMEs operating as digital commodities investment platforms or such other MSMEs as may be designated by the commission from time to time,” SEC proposed.

For the purpose of calculating the aggregate amount of securities and investment instruments offered and sold by an issuer under this Rule and determining whether an issuer has previously sold securities or investment instruments within a 12-month period, according to the SEC, “the term issuer as used in this Rule, shall include all entities controlled by or under common control with the issuer and any predecessors of the issuer.”

According to the Rule, a crowdfunding portal that is located outside Nigeria will be considered as actively targeting Nigerian investors, if the operator or the operator’s representative, promotes directly or indirectly the platform in Nigeria.

The industry regulator stated that a crowdfunding portal might be registered and operated only by an operator registered with the SEC as a Crowdfunding Intermediary.

It clarified further: “Only entities registered with the Commission as an exchange, dealer, broker, broker/dealer or alternative trading facility as prescribed under the Act and the SEC Rules and Regulations might be registered as a Crowdfunding Intermediary.

“Every crowdfunding portal is required to appoint a custodian, who shall establish and maintain a separate trust account for each funding round on its platform with a financial institution registered by the commission as a Custodian.

“To be hosted on a Crowdfunding Portal, a proposed issuer must submit relevant information including explanations of the key characteristics of the company; the purpose of the listing and the targeted offering amount; and the audited financial statements of the company”, the regulator proposed.

Source: Daily Trust