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The Securities and Exchange Commission, SEC, has issued updated guidelines and rules governing the operation of CrowdFunding activities in Nigeria.
This follows an exposure draft issued in May 2020 by the commission. SEC introduced Crowdfunding Intermediaries who will facilitate crowdfunding transactions such as offer for sale of securities or instruments through its portal.
This means anyone seeking to raise money through a crowdfunding service will have to go through a Crowdfunding Intermediary (CFI). Thus, a fundraiser (the initiator of the fund) will need to go through a CFI web portal to raise capital.
The new rules also limit the amount retail investors can invest in a crowdfunding transaction to just 10% of their net annual income in a year. This means individuals cannot invest more than 10% of their net salaries in crowdfunding activities. But this excludes High Networth Individuals who do not have limits.
In summary, this is SEC Nigeria’s attempt to provide a framework around who can participate in crowdfunding issuances, drive increased transparency around Crowdfunding issues AND create more accountability to investors.
Specifically, the new rules specify the following four (4) participants in a crowdfunding issuance; Fundraiser, Crowd-Funding Intermediary, Investors, and Custodians.
There is also a provision for applications for a self-regulatory trade association to facilitate Crowdfunding supervision; Fundraiser: refers to the originator, maker, or obligor of the investment instrument to be issued pursuant to these Rules.
Crowdfunding Intermediary (CFI): An entity organized and registered as a corporation to facilitate transactions involving the offer or sale of securities or investment instruments through a Crowdfunding Portal (CFP);
Investors: As defined by the act; relates to end takers of the instruments and products from the crowdfunding issue. The SEC attempts to differentiate between High-net-worth individuals, Retail Investors, and Qualified Institutional Investors. Custodians are the banks who will hold the funds contributed on behalf of the parties.
The four categories of participants specified in the rule are required to register with the SEC for purposes of taking part in Crowd Funding activities. Whereby the SEC will approve or reject registration requests depending on the eligibility criteria as outlined in the new rules on Crowdfunding.
The eligibility criteria vary by participant type. As an example,
Fundraisers must be entities incorporated in Nigeria and have been in operation for at least two years. Or have technical partners who meet the 2-year operating track record requirement.
Crowdfunding Intermediaries have a lot more onerous set of requirements for registration. This is because these intermediaries are the core participants saddled with creating and operating crowdfunding portals (i.e., Platforms/marketplace for the crowdfunding issue).
Notably, both the Crowdfunding intermediaries and the actual Crowdfunding platforms need to be registered.
Custodians: As the name implies will facilitate the aggregation of funds deposited and only release to the Fundraiser subject to the criteria of each issuance being met.
Fundraiser: refers to the originator, maker, or obligor of the investment instrument to be issued pursuant to these Rules.
Crowdfunding Intermediary (CFI): An entity organized and registered as a corporation to facilitate transactions involving the offer or sale of securities or investment instruments through a Crowdfunding Portal (CFP);
Investors: As defined by the act; relates to end takers of the instruments and products from the crowdfunding issue. The SEC attempts to differentiate between High-net-worth individuals, Retail Investors, and Qualified Institutional Investors. Custodians are the banks who will hold the funds contributed on behalf of the parties.
Requirements include; The four categories of participants specified in the rule are required to register with the SEC for purposes of taking part in Crowd Funding activities. Whereby the SEC will approve or reject registration requests depending on the eligibility criteria as outlined in the new rules on Crowdfunding.
The eligibility criteria vary by participant type. As an example, Fundraisers must be entities incorporated in Nigeria and have been in operation for at least two years. Or have technical partners who meet the 2-year operating track record requirement.
Crowdfunding Intermediaries have a lot more onerous set of requirements for registration. This is because these intermediaries are the core participants saddled with creating and operating crowdfunding portals (i.e., Platforms/marketplace for the crowdfunding issue).
Notably, both the Crowdfunding intermediaries and the actual Crowdfunding platforms need to be registered. Custodians: As the name implies will facilitate the aggregation of funds deposited and only release to the Fundraiser subject to the criteria of each issuance being met.
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