The crowdfunding intermediary must be duly registered as: (i) a broker, pursuant to the requirements of Section 28 of the SRC; or (ii) an investment house under the Investment Houses Law and its Implementing Rules and Regulations; or (iii) a funding portal, subject to the requirements of Crowdfunding Rules. [See Registration of funding portals]
In addition to such registration, these entities must separate apply for registration as a crowdfunding intermediary. The applicant shall specifically signify in the application his intention to conduct the activities of a crowdfunding intermediary, either singly or in concert with others, prior to engaging in said activities.
An applicant to register as a crowdfunding intermediary before the Securities and Exchange Commission (SEC) shall satisfy the following criteria:
A. The applicant shall demonstrate that it is capable to operate an orderly, fair and transparent market in relation to the offer and sale of securities through its electronic facilities.
B. The applicant’s board, chief executive, controller, and any other person who is primarily responsible for its operations, are fit and proper and have not:
- willfully violated any provision of the Crowdfunding Rules, the SRC and its rules, any rule, regulation or order made hereunder, or any other laws administered by the SEC, or in the case of a registered broker has failed to supervise, with a view to preventing such violation, another person who commits such violation;
- willfully made or caused to be made a materially false or misleading statement in any application for registration or report filed with the Commission or a self-regulatory organization, or has willfully omitted to state any material fact that is required to be stated therein;
- failed to satisfy the qualifications or requirements for registration prescribed under Article Two (Crowdfunding Intermediary Requirements) of the Crowdfunding Rules, and any related provisions in the SRC and its rules;
- been convicted, by a competent judicial or administrative body of an offense involving moral turpitude, fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real estate or insurance laws;
- been enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities, banking, real estate or insurance activities or from willfully violating laws governing such activities;
- been subject to an order of a competent judicial or administrative body refusing, revoking or suspending any registration, licensed or other permit under the Crowdfunding Rules, the SRC and its rules, and any other laws administered by the SEC;
- been subject to an order of a self-regulatory organization suspending or expelling him from membership or participating therein or from association with a member or participant thereof;
- been found by a competent judicial or administrative body to have willfully violated any provisions of securities, commodities, banking, real estate or insurance laws, or has willfully aided, abetted, counseled, commanded, induced or procured such violation; or
- been judicially declared insolvent.
For purposes of this subsection, the term “competent judicial or administrative body” shall include a foreign court of competent jurisdiction and a foreign financial regulator.
C. The applicant’s Board will be able to ensure the crowdfunding intermediary complies with all the requirements under the SRC and its Rules, including any directive or any term or condition imposed by the Commission.
D. The applicant will be able to manage risks associated with its business and operation including demonstrating the processes and contingency arrangement in the event the applicant is unable to carry out its operations.
E. The applicant shall establish and maintain policies and procedures to monitor crowdfunding activities in its platform and ensure compliance with the Crowdfunding Rules.
F. The applicant will appoint at least one Lead Person, who shall be the chief executive of the intermediary or any person who is primarily responsible for the operations and financial management, by whatever name he is called. At all times, the Lead Person shall undertake the role of the main contact person for the purpose of liaising with the SEC and perform any duty as may be directed by the SEC. A crowdfunding intermediary shall ensure that the Lead Person and Persons associated with the crowdfunding intermediary undergo relevant trainings with regard to crowdfunding activities and its related activities.
G. The applicant will be able to take appropriate action against a person in breach including directing the person in breach to take any necessary remedial measure.
H. The operational framework, policies and procedures of the intermediary shall make satisfactory provisions-
- for the protection of investors and public interest;
- to ensure proper functioning of the market;
- to promote fairness and transparency;
- to manage any conflict of interest that may arise;
- to promote fair treatment of its users or any person who subscribe for its services;
- to promote fair treatment of any issuer, or potential issuer, on its portal;
- to ensure proper regulation and supervision of its users, or any person utilizing or accessing its portal, including suspension and expulsion of such persons;
- to provide an avenue of appeal against the decision of the crowdfunding operator; and
- the applicant has sufficient financial, human, and other resources for the operation of crowdfunding activities, at all times.
I. Before the applicant is allowed to fully operationalize the platform, the SEC may require among others:
- The intermediary to provide an IT assurance regarding the system readiness; and
- A written declaration by the intermediary’s internal auditor or lead person confirming that the intermediary has, in relation to the crowdfunding market: (i) Sufficient human, financial and other resources to carry out operations; (ii) Adequate securities measures, systems capacity, business continuity plan and procedures, risk management, data integrity and confidentiality, record-keeping and audit trail, for daily operations and to meet emergencies; and (iii) Sufficient IT and technical support arrangements.
For purposes of this rule, users mean issuers, investors, potential investors who have the authority to use or access a crowdfunding intermediary’s platform.
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