Introduction
On August 3, 2022, the Securities and Exchange Commission ("SEC") issued a circular to the general public, cautioning them against making investments with or through crowdfunding platforms that are yet to be registered with SEC. This circular was issued further to the Rules on Crowdfunding released by SEC in January, 2021 ("Rules") requiring all well-intending crowdfunding intermediaries to be registered with the commission by June 30, 2021.
To assist unregistered crowdfunding intermediaries in complying with the Rules, we have set out the requirements for registration with SEC.
1. What is a Crowdfunding Intermediary and a Crowdfunding Portal?
A crowdfunding intermediary is an entity that facilitates transactions involving the offer or sale of securities through a crowdfunding portal. A crowdfunding portal, on the other hand, is the website, portal or platform used to facilitate interactions between fundraisers and the investing public.
It is important to note that crowdfunding intermediaries do not include technology service providers, communication infrastructure operators or financial service providers whose services are merely required for the proper operation of the crowdfunding portal.
2. What Crowdfunding Intermediaries are required to be registered with SEC?
The Rules require crowdfunding intermediaries that facilitate interactions between fundraisers and the investing public in Nigeria for investment-based crowdfunding, to be registered with SEC.
Under the Rules, a crowdfunding intermediary would be deemed to be operating a crowdfunding platform in Nigeria where, the crowdfunding portal is operated in Nigeria; or where it targets Nigerian investors. A crowdfunding portal located outside Nigeria would be deemed to be targeting Nigerian investors where the crowdfunding intermediary promotes the crowdfunding portal in Nigeria.
3. What are the registration requirements for Crowdfunding Intermediaries?
Corporate entities that wish to be registered with SEC as crowdfunding intermediaries are required to submit an application (using the appropriate forms) to SEC in addition to: a) the incorporation documents of the applicant as issued by the Corporate Affairs Commission (CAC); b) the audited accounts of the applicant; c) the applicant's profile; d) the operation manual and business plan of the applicant; e) information on the crowdfunding system to be adopted by the applicant; f) the proposed brand name of the crowdfunding portal including evidence of trademark registration; g) the domain names of any website through which the crowdfunding portal would be operated and applicable social media handles e.t.c.
4. What is the minimum share capital for entities carrying on business as crowdfunding intermediaries?
The Rules require entities that intend to conduct business as crowdfunding intermediaries to have a minimum paid-up share capital of N100,000,000 (One Hundred Million Naira)/ $237,625.64. The applicant is also to take up a Fidelity Insurance Bond covering at least 20% of the minimum paid-up capital as stipulated by SEC's rules and regulations.
5.What are the criteria for the approval of an application to be registered as a crowdfunding intermediary?
In determining whether the applicant should be registered as a crowdfunding intermediary, SEC is required to be satisfied that:
a. the applicant will be able to operate a fair and transparent
crowdfunding system;
b. the principal officers of the applicant are fit and proper
persons;
c. the applicant has sufficient financial, human and other
resources for the operation of a crowdfunding portal as may be
prescribed by SEC from time to time; and
the rules of the applicant make satisfactory provisions for the
protection of investors and public interest; management of
conflicts; the regulation and supervision of its users e.t.c.
6.What activities are registered Crowdfunding intermediaries prohibited from undertaking?
Registered crowdfunding intermediaries are prohibited from:
a. providing financial assistance to investors to invest in a
fundraising offer hosted on its portal or compensating any
introducer for providing it with information on potential
investors;
b. soliciting investments;
c. facilitating secondary trade for investment instruments issued
under the platform; and
d. using any alternative website or social media portal other than
the portal registered with SEC.
7. What is the penalty for failure to register with SEC?
The Rules provide that crowdfunding intermediaries that fail to comply with the provisions of the Rules will be liable to a fine of not less than N100,000 (one hundred thousand Naira only)/ $237.62 and N5,000(five thousand naira)/ $11.88 for every day the violation continues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
