Keywords: trade marks, China, copyright amendment bill, Hong Kong, Pharmacy and Poisons Ordinance, URS System, Chinese Postal Bureau, Personal Data Protection Rules

Due to the growing popularity of crowd funding in Hong Kong, on 7 May 2014, the Hong Kong Securities and Futures Commission (SFC) issued a notice to remind all operators of crowd funds that crowd funding may involve the application of securities laws and regulations, and to warn investors of the risks involved in crowd funding ("Notice").

What is crowd funding?

"Crowd funding" involves the investment of a small amount of money by a large number of different people via an online platform, which is used to fund a project, business or loan. Typical examples of crowd funding include where a number of people invest in a start-up business and gain an interest in the shares of the start-up company, or they donate money towards a charitable cause, or make a loan to a third party, etc.

The key players in a crowd-funding activity are (i) the operator of the crowd-funding online platform; (ii) the organisation, business or borrower (i.e., the organisation or individual that is receiving and using the investment); and (iii) the investor (i.e., the person making the investment).

What is the current regulatory regime?

Currently crowd funding is not specifically regulated by a single overarching law in Hong Kong. However, this does not mean that crowd funding is unregulated; a variety of different laws may kick in, depending on the nature of the crowd funding. In particular, crowd-funding activities may be subject to the requirements of the Securities and Futures Ordinance (Cap. 571) (SFO) or the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). In summary, those engaged in crowd-funding activities may find themselves subject to the following restrictions or requirements (unless an exemption applies):

  • Restrictions on the issuance of an advertisement, invitation or document that knowingly invites the public to acquire securities or participate in collective investment schemes;
  • Prospectus registration requirements in relation to the public offering of shares or debentures of a company;
  • The crowd-funding operator may need to be licensed under the SFO if it carries out any regulated activities, e.g., dealing in securities, advising on securities, providing automated trading services, etc., which will also give rise to other SFC requirements set out in applicable codes or guidelines; and
  • Requirements in relation to automated trading services and recognised exchange companies, depending on the nature of the crowd-funding platform.

Breach of any legal or regulatory requirements, including those set out above, may result in criminal and civil liability.

What are the risks posed to investors?

Due to the anonymous nature of crowd funding, and the fact that it is done via an online platform, investors are exposed to a number of risks. Investors should consider all possible risks before deciding whether or not to participate in crowd funding. These risks include the following:

  • The investor may lose their investment, e.g., the project or business it has invested in may fail, the borrower may default on the unsecured loan, or the crowd-funding platform may be shutdown or the operator may become insolvent;
  • There is a higher risk of fraud or other illegal activities, i.e., money laundering or illegal commerce, due to the anonymous nature of crowd-funding platforms;
  • There is greater difficulty in liquidating their investments in crowd funding as there is limited or no secondary market for the investments;
  • There is a significant risk of loss or theft of information (including personal data), as the crowd-funding platform may be hacked or have weak security measures in place;
  • If the crowd-funding platform is operated or hosted outside of Hong Kong, then the investor may not be able to benefit from the same level of legal protection provided in Hong Kong; and
  • There may be a lack of full and accurate information on, or vetting by the crowd-funding operator of, the investment or loan being made, including the project, business or person that is receiving the investment or loan.


The Notice draws attention to the risks posed by crowd funding, from criminal liability for operators to the risks for investors of loss of money or even identity theft. As such, crowd funding should not be taken lightly. We advise all persons engaged in crowd-funding activities to follow the clear message set out in the Notice – seek legal advice before investing or engaging in crowd funding.

Originally published June 2014

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