Regulation is Key for Full Benefits of Crowdfunding (by Wisdom Anku)
This editorial is written by Wisdom Anku, MD/CEO of Propartners Exchange Limited, an alternative investment and alternative capital services provider based in Accra, Ghana. The article situates a crowdfunding platform in the category of other better-known alternative investment intermediaries like private equity and venture capital. All traditional and non-traditional investment service providers thrive on good investor protection which can only be assured by strict adherence to legal provisions established by regulators.
Crowdfunding Platforms like other Alternative Investment Intermediaries are entities that facilitate investments in assets other than traditional stocks and bonds. Examples of Alternative Investment Intermediaries include private equity funds, venture capital funds, and hedge funds. While Crowdfunding Intermediaries can provide diversification benefits to investors and the much-needed capital for startup businesses, they are also associated with higher risks due to the illiquidity of the investment assets and inadequacy of regulation in many African countries.
Regulation of Crowdfunding Intermediaries in African capital markets is a complex and evolving area. In general, the regulation of Crowdfunding Intermediaries in Africa is often fragmented and varies significantly from country to country. However, there are some common regulatory frameworks and practices that are being implemented across the continent to ensure that Crowdfunding Intermediaries operate in a safe and sound manner.
In many cases, existing frameworks serve as guides to the extent of applicability. One key regulatory framework that is used to guide Crowdfunding Intermediaries in Africa is the Collective Investment Schemes regulation. This regulation requires Crowdfunding Intermediaries to be licensed and regulated by the relevant securities’ regulatory authority in the country where they operate. Nigeria and Kenya currently appear to be leading in this regard. In Ghana, the Securities and Exchange Commission is at advance stage of adopting Guidelines to regulate Crowdfunding Intermediaries. The draft regulation sets out various requirements for Crowdfunding Intermediaries, including minimum capital requirements, disclosure requirements, and investment restrictions.
Another important framework that is guiding the regulation of Crowdfunding Intermediaries is the existing Directives for other Alternative Investment Fund Managers. This sets out various requirements for Crowdfunding Intermediaries, including transparency requirements, risk management requirements, and investor protection requirements.
In addition, there are other existing regulatory frameworks that are being employed across Africa to regulate Crowdfunding Intermediaries. These include regulations related to anti-money laundering and combating the financing of terrorism, regulations related to corporate governance and ethical standards, and regulations related to the supervision of service providers to Crowdfunding Intermediaries.
In spite of advance efforts to regulate Crowdfunding Intermediaries in several African economies including Nigeria, Kenya, Ghana and South Africa, it’s still a long way home. For African economies to leverage the full potential and benefits of Crowdfunding as is the case in developed economies like the United States and Australia, it is crucial to urgently harmonize regulatory frameworks not only in the individual countries but across the entire African market.
Credit: Propartners Exchange & Crowd54