Hong Kong News

Nonpartisan, Noncommercial, unconstrained.
Friday, Mar 31, 2023

Must Hong Kong regulate crowdfunding? Experts and start-ups don’t like the idea

Must Hong Kong regulate crowdfunding? Experts and start-ups don’t like the idea

Proposal to cover campaigns from everywhere, and donors too, looks hard to implement, lawyers say.

Hong Kong legal experts and start-ups are concerned that a government proposal to regulate crowdfunding activities in the city might be too broad and could affect support for new enterprises.

Questioning the merits and need for the proposed law, legal experts said the city already had a wide range of legislation to deal with any wrongdoing arising from such fundraising activities.

Founders of start-ups which benefited from donations said crowdfunding had been critical for them and were concerned the new curbs would only add to the burdens new enterprises faced.

Under the proposal, outlined in a 25-page consultation document issued by the Financial Services and Treasury Bureau last month, anyone planning a crowdfunding activity seeking donations from Hongkongers must first get clearance from a new Crowdfunding Affairs Office.

Those planning a crowdfunding campaign must pledge that the drive will not involve activities that jeopardise national security.

The proposal covers non-investment crowdfunding activities, such as donations and new product launches.

Those planning a crowdfunding campaign will have to provide their personal data, information of the local bank account used for the drive and the beneficiaries. They must also pledge that the drive will not involve any activities that jeopardise national security.

Law enforcement agencies will be empowered to ban or stop any unapproved or unlawful crowdfunding activity, and prosecute not only the organisers but also those who donate.

The proposal followed high-profile crackdowns on crowdfunding initiatives to support those charged over their roles in the 2019 anti-government protests, including the 612 Humanitarian Relief Fund which offered more than HK$243 million (US$31 million) it raised from donations to individuals facing criminal prosecution or financial strain in the wake of the unrest.

While the consultation paper mentioned “national security” 25 times, it provided few details on how start-ups would be affected.

That worried fashion designer Tsang Mei-sze, 28, who raised HK$188,730 from 98 backers for her brand TMS.SITE using the Kickstarter platform last May to put out a line of work trousers she designed together with construction workers.

She said that if she had to deal with a pre-approval process for crowdfunding, her small team’s workflow would be disrupted. But Tsang added that she was unlikely to avoid crowdfunding and hoped the new scrutiny would not be too onerous.

“It has to be manageable because for a start-up, nothing is worse than running out of money,” she said.

Founders of start-ups say crowdfunding has been essential for their businesses.


MangDang, a start-up founded in 2020 to build robot dogs, held two crowdfunding events which not only provided its primary source of revenue but also helped it gain global exposure.

Founder Afreez Gan, in his 40s, was concerned the proposed law would result in an inevitable drag on crowdfunding, but he said the authorities’ scrutiny could also help organisers prepare better.

“They surely will be asking questions, and perhaps the questions will help us realise blind spots to consider,” he said.

According to the consultation paper, major factors to be considered by the regulator include the soundness of the crowdfunding activity’s processes, “whether the individuals involved are reliable”, and risks to the public interest and national security.

Senior counsel Joseph Tse Wah-yuen agreed that if the law was drafted “sufficiently well”, it could deliver benefits such as providing some form of compensation protection to donors if the platform collapsed.

“But I do not see any mention of this aspect from the paper,” he said. “The proposed scheme is merely to keep a register, grant or deny approvals, issue prohibitions and [create] offences.”

Professor Julius Yam, a law expert from the University of Hong Kong, was concerned about the wide extent of the crowdfunding gatekeeper’s purview.

The consultation paper said a crowdfunding campaign would need pre-approval if it was seeking funds from “any Hong Kong permanent residents” or “any body corporates incorporated or registered in Hong Kong”.

It would also cover campaigns from outside Hong Kong, even for purposes unrelated to the city. The paper suggests that crowdfunding platforms accepting funds from Hong Kong residents would have to register with the authorities, and name at least one representative with a physical address in the city.

Yam cautioned that defining the regulator’s scope too broadly would raise questions about consistency of implementation and whether it could monitor all such campaigns across the world.

He asked: “Will an overseas campaign, which on the face of it has nothing to do with Hong Kong or those in Hong Kong but happens to attract a lot of publicity or backers in Hong Kong, be caught under the proposal?”

He said even the government conceded in the paper that as many crowdfunding platforms operated outside Hong Kong, it would have to “evaluate carefully the coverage and operational practicality” when considering creating a register for them.

Both Tse and Yam questioned the merits of separate legislation for crowdfunding, especially when it might stifle social and business innovations crucial to an international financial centre such as Hong Kong.

Tse said the city had sufficient fraud, money-laundering, national security and other laws for the authorities to “tackle any scenario imaginable”, and separate legislation for crowdfunding might actually distract organisers from looking out for other legal risks.

“My view is clear on this, the end does not justify the means,” Tse said.

The public has until March 20 to comment on the consultation paper.

Newsletter

Related Articles

Hong Kong News
Close
0:00
0:00
Don’t Dismiss China’s Peacemaking Bid
Austrian Parliament members walk out when Volodymyr Zelensky begins speaking.
Father obliterates council members following viral TikTok of biological male masturbating in women’s bathroom..
Tsai Ing-wen received a "warm welcome" from the Chinese people in the US.
EU's von der Leyen: "We know this is an era where we rely on one single supplier. China. 98% of our rare earth supply."
China and Brazil have signed a new deal that will allow them to trade in their own currencies, bypassing the US dollar as an intermediary
Elon Musk and Others Call for Pause on A.I., Citing ‘Profound Risks to Society’
“We've had evidence prior to the pandemic that masks were largely ineffective at preventing community transmission of influenza “
Former Starbucks CEO Howard Schultz:
Former Starbucks CEO Howard Schultz rejects being labeled a "billionaire"
Jamie Dimon is being deposed over JPMorgan Chase role in Epstein lawsuits
Brand new security footage has just been released to the public showing the Active shooter Audrey Elizabeth Hale drove to Covenant Church School in her Honda Fit this morning, parked, and shot her way into the building
Social Media censoring users for saying the true
Smart Iranian fashion designer teaching dummy TV anchors lesson about reality
AMERICA, 2023
U.S. charges FTX's Bankman-Fried with paying $40 million bribe
Fallen 'Crypto King' Who Owes Millions to Investors Was Kidnapped and Tortured
Regulators blame social media for SVB's rapid collapse: 'Complete game changer'
AOC explains why she opposes banning TikTok
Singapore’s Prime Minister says China and US need to stabilize relations because world can't afford a confict between the two superpowers
In a dramatic U-turn against His Government: Judicial Reform Legislation Must Be Halted, Says Israeli Defense Minister Yoav Gallant
Gordon Moore, a co-founder of Intel Corporation, died at 94
Powell: Silicon Valley Bank was an 'outlier'
Bordeaux town hall set on fire in France pro democracy protest
Police violence in Paris
Paris: Some of the police are stepping down and showing solidarity with the protesters.
Donald Trump arrested – Twitter goes wild with doctored pictures
NYPD is setting up barricades outside Manhattan Criminal Court ahead of Trump arrest.
Credit Suisse's Scandalous History Resulted in an Obvious Collapse - It's time for regulators who fail to do their job to be held accountable and serve as an example by being behind bars.
Goldman Sachs cuts outlook for European bank debt over Credit Suisse crisis
Paris Rioting vs Macron anti democratic law
'Sexual Fantasy' Assignment At US School Outrages Parents
The US government has charged Chinese businessman Guo Wengui with leading a $1 billion fraud scheme that cheated thousands of followers out of their money.
Credit Suisse to borrow $54 billion from Swiss central bank
The BBC problem about China
Russian Hackers Preparing New Cyber Assault Against Ukraine
"Will Fly Wherever International Law Allows": US Warns Russia After Drone Incident
If this was in Tehran, Moscow or Hong Kong
Announcing GPT-4
TRUMP: "Standing before you today, I am the only candidate who can make this promise: I will prevent World War III."
China is calling out the US, UK, and Australia on their submarine pact, claiming they are going further down a dangerous road
A brief banking situation report
We are witnessing widespread bank fails and the president just gave a 5 min speech then walked off camera.
Donald Trump's asked by Tucker Carlson question on if the U.S. should support regime change in Russia?.
'No relation to the American SVB': India's SVC Bank acts to calm depositors amid brand name confusion.
Good news: The U.S. government is now guaranteeing all deposits, held by, Silicon Valley Bank, and the funds are available as of today
Silicon Valley Bank exec was Lehman Brothers CFO
In a potential last-ditch effort, HSBC is considering a rescue deal to save Silicon Valley Bank UK from insolvency
Saudi Arabia has announced a major breakthrough in diplomacy with Iran after two years of intense talks
Elon Musk Is Planning To Build A Town In Texas For His Employees
×