The Financial Services Development Council is calling for a better regulatory regime for equity crowdfunding in Hong Kong.
At the same time, Laurence Li Lu-jen, convenor of the government advisory body’s policy research committee, said the city must not turn its back on this financial innovation for fear of unrestrained development that might harm the interests of investors, the Hong Kong Economic Journal reported.
Instead, the government should balance the need to protect investors and the investment opportunities provided by this new method of raising funds for business start-ups, Li said.
Hong Kong should catch up with other countries, such as the United States, Britain and Australia, which are widely using this investment mechanism, he added.
Equity crowdfunding, which allows a broad group of people to invest in a new business in return for shares in the company, is deemed very risky especially during times of economic downturn.
Some critics refer to the defunct Lehman Brothers’ mini-bonds which collapsed during the 2008 financial crisis, leaving ordinary investors with huge losses.
Li, however, said the mini-bond fiasco was the result of mis-selling, and the city should beef up its regulatory system to prevent such developments from happening again.
The FSDC has recently issued a research report, calling on Hong Kong to study the legal frameworks in Britain and Australia to improve the city’s regulations on equity crowdfunding, particularly in restricting the number of investors and fundraising size.
– Contact us at [email protected]