Digital Finance Regulation Saeed Hassan Hong Kong, May 5, 2015

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Source: Grow Advisors market analysis

Background

Lack of lending by traditional institutions post 2008 - SMEs seen as the backbone of many economies, and key generator or jobs

Declining trust - Traditional institutions seen as carrying burden of responsibility

Technology - Led to a greater reach among a much wider audience, often internationally.

Rise of sophisticated social networks - “true identities”, ID checks and secure online transactions

Background

Startup Culture - Often held back through lack of funding and inefficient ecosystems

Need to increase efficiencies - Many industries looked to remove intermediaries / middlemen

Technology - Led to a greater reach among a much wider audience, often internationally.

Why change?

Boost confidence and greater transparency - Decentralisation | democratisation: allow more people to be part

Funding - Particularly among start up companies and create jobs

Un-tap potential of savings - Better informed investors, accessibility to deal flow and diversification

Leaner, more efficient market places - Eliminate traditional closed door networks

So what happened?

Pre-existing - Offline networks among select investors (e.g. HNW, Angels, VCs)

Watershed moment: US Jobs Act, April 2012 - Number of countries with specific regulation or plans increased rapidly…

An iterative process - Several of the early starters have already made revisions to original legislation

USCanada, Italy, US, Malaysia, Australia

New Zealand, France

Germany, France, EU, UK, Australia, India, Spain, New

Zealand, Japan, Spain, EU, China

Italy, Thailand, US, Canada, Singapore, Germany, Taiwan

Paradox - Those with the strictest regulations are making them less so. (Italy vs. New Zealand)

Asia - New Zealand, Australia & Malaysia among the 1st. Singapore, Thailand and Taiwan to follow.

US - Complexity of State vs. Federal law an added hurdle.

Leaner, more efficient market places - Eliminate traditional closed door networks

So what happened?

Issuers - Commonly used by startups but also seen to invigorate investment (e.g. real estate)

Crisis | Incidents - On the contrary, healthy growth where regulation has worked, stalled where it hasn’t

So what happened?

Retail investors are welcomed - With investment limits per offering or per year.

Maximum raise - Many capped the maximum an issuer can raise

Registration and licensing - Reporting requirements, including user activity. Minimum capital requirements & insurance.

Common traits

Crowdfunding capital of the World - London has the most campaigns per day, though the US leads the UK overall.

Factors - Open minded, balanced regulation allowed CFPs to flourish. Embraced innovation.

Tracking - Data obtained by the FCA shows the industry has continued to grow strongly post regulation.

Other Factors - US/UK equity investment culture (vs. Germany) an enabling factor. Singapore / Hong Kong?

Success Stories The UK

Competitors and other market players? - VCs have taken advantage of crowdfunding and traditional banks are looking at P2P

Future impact - Well thought out plans will help financial centres such as Hong Kong cement their position

Resource Utilisation - Better circulation of public and private funds will increase efficiency of the market and

boost the market

Finally

Saeed Hassan saeed@growadvisors.com

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