The US Securities and Exchange Commission (SEC) has recently released and made public the new Crowdfunding Rules. It is assumed that now crowdfunding platforms in the United States, as well as located on the territory of Nigeria and located outside it, will work in a new way.
Further in the material, we offer a brief overview of the new order, which is mandatory for launching crowdfunding platforms in Nigeria, as well as their functioning.
First of all, it is worth noting that a market is being considered where only public companies are allowed to offer securities to the public. The new rules are more focused on streamlining the attraction of online financing from public sources by entities other than listed companies regulated by the SEC.
Registration of crowdfunding platform in Nigeria
The new Rules require crowdfunding portals to be registered with the SEC. Crowdfunding portals located on the territory of Nigeria and beyond are required to register. The rules will apply if:
- The platform operates or is maintained in Nigeria;
- Component parts of the platform are physically located in Nigeria, even if some of the parts, separately, are located outside of it.
Digital Goods Investment Platforms
Additional obligations are imposed on the investment platforms of digital goods. From now on, they should place investment projects only on crowdfunding platforms, which are under the control of the regulator. In addition to regulating the registration of crowdfunding portals in Nigeria, the SEC also monitors the work and sets the rules by which the activities of the crowdfunding portal can be stopped.
Prohibitions and punishment for violations
In accordance with the new Rules, crowdfunding portals are prohibited from:
- solicit investments or make recommendations that apply to both platforms and their officials;
- act as an intermediary in secondary transactions between buyers and sellers in relation to securities or crowdfunding instruments.
For non-compliance with the Rules, large fines are applied, which can be from 1 million NGN and higher.
In addition to fines, the SEC may stop the launch of crowdfunding in Nigeria if:
- the portal does not meet the requirements of the Rules;
- the crowdfunding broker has been working for less than 6 consecutive months;
- delays with payment of fees to the SEC.
Basic rules for crowdfunding platform functioning in Nigeria
If you intend to open a crowdfunding platform in Nigeria you should be aware that the SEC has determined the threshold for raising capital for various categories of issuers, as well as other provisions governing the process of an offer:
- the term of the offer on the issue may not exceed 60 days;
- if the issuer fails to raise the minimum threshold during the placement period, the issuer is obliged to withdraw the offer, return the funds received to investors within 48 hours and cannot carry out crowdfunding in Nigeria within 90 days after the withdrawal;
- placement documents should be concise, standardized for use in digital format, and also accessible to potential investors;
- Investors cannot transfer securities purchased within one year.
The rules establish clear rules for the game on the field of crowdfunding, determine who is authorized to work in the field of digital crowdfunding. The rules also offer a clear picture of how participants should register and how crowdfunding works in general. The rules allow only crowdfunding intermediaries to manage portals, as well as register such portals.
If you want to receive more detailed information on this topic, you have the opportunity to request advice on the launch of a crowdfunding platform in Nigeria from our experienced specialists.