The Central Bank of Russia (CBR) said on Wednesday has set up a working group for the development of a regulatory framework for crowdfunding regulation.
The working group, which consists of market experts from more than ten local crowdfunding platforms, will put forward proposals for the development of crowdfunding regulation and will submit them to the regulator. The proposals will become a core of a crowdfunding regulatory framework that will be developed by the central bank.
According to the CBR notice, the crowdfunding market is intended to be regulated in three main directions:
- regulating activities of crowdfunding platforms and determining requirements for their owners and management;
- determining requirements for issuers of securities (offered through the platforms) and borrowers;
- and determining requirements for creditors and investors using crowdfunding platforms.
Supervision over crowdfunding platforms should be guided by the market risks without hindering the development of efficient crowdfunding business models, the central bank’s notice read.
“We based our concept of crowdfunding regulation on proportionate regulation and supervision guided by the expected risks, and took into account the needs of market participants who face difficulties in accessing certain funding sources”, said Mikhail Mamuta, head of the service for protection of financial services consumers and minority shareholders at the CBR. “However, we have enough time, because crowdfunding market is only emerging and has yet to gain in volume,” he added.
Crowdfunding regulation will probably be introduced piecemeal. This will happen through oversight and voluntary polls of crowdfunding platforms, working out criteria for their classification and registration, reporting and subsequently establishing requirements for financial indicators and risk management.
Among the issues that will be addressed in the initial phase of the development of the crowdfunding regulatory framework are monitoring and consumer risk assessment, as well as consumer right protection.
In addition, technology terms will be clarified. For instance, crowdfunding is suggested to be defined as “a mechanism for raising borrowed funds or collective funding of companies or projects with the use of Internet platforms, e.g. p2p loans, targeted grants and donations, as well as investment, through acquisition of a company’s shares or bonds, project funding with a view to make use of its outcome (concert tickets, CDs, film-making, etc.)”.
The Russian crowdfunding market is estimated at less than RUB 500 million, which, according to the CBR, shows disproportion of different segments and high volatility and is indicative of the emerging stage of the market. Some of the main risks associated with crowdfunding vary from inaccurate identification, low quality of business project verification or other borrowers, to non-transparent activity of a platform and possibility of fraud, according to polls conducted by the CBR among market participants.
The CBR is Russia’s financial mega-regulator which oversees the banking and all brokerage markets in the country. Forex services are regulated in the country since the beginning of 2016 and the regulation of binary options is to be decided on by the end of 2017.