SEC Releases Exposure Rules on Crowdfunding

The Securities and Exchange Commission (SEC), on the 28th of March 2020, released its Proposed Rules on Crowdfunding (the Proposed Rules). Crowdfunding, over the years, has become popular globally as a means of raising capital by small businesses from the public via online electronic platforms without having to register the securities with a securities commission.

The process will typically be subject to the regulatory oversight of the relevant securities commission. In recent times, there have been efforts by small businesses in Nigeria to raise capital from the public through online electronic platforms; however, before now, there has not been any regulatory framework for crowdfunding in Nigeria. The efforts by SEC to release the Proposed Rules is very commendable as it provides the necessary legal and regulatory framework and guidance for undertaking crowdfunding in Nigeria.

Crowdfunding: Key Terms

The Proposed Rules defines crowdfunding as the process of raising funds to finance a project or a business through an online electronic platform. The online electronic platform is described in the Proposed Rules as a Crowdfunding Portal. An entity raising funds through a Crowdfunding Portal is referred to as an Issuer. The Proposed Rules defines an Issuer as the originator, maker, or creator of a security or investment instrument that will be registered with a Crowdfunding Intermediary.

A Crowdfunding Portal may be registered or operated by an entity registered with the Commission as a Crowdfunding Intermediary. A Crowdfunding Intermediary is registered to facilitate transactions involving the offer or sale of securities or investment through an online electronic platform. The Proposed Rules indicate that only an entity registered as Exchange, Dealer, Broker, Broker-Dealer, or Alternative Trading Facility may be registered as a Crowdfunding Intermediary.

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