SC Annual Report 2020: SC's liberalisation of ECF, P2P financing platforms bolsters funding, up 43% y-o-y

SC Annual Report 2020: SC's liberalisation of ECF, P2P financing platforms bolsters funding, up 43% y-o-y
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KUALA LUMPUR (March 18): The Securities Commission Malaysia (SC) says it has taken appropriate steps to mitigate lower demand from investors in the alternative market due to pandemic-induced uncertainties, especially on equity crowdfunding (ECF) and peer-to-peer (P2P) financing platforms.

As a result, 1,403 issuers raised RM631.04 million on ECF and P2P financing platforms in 2020, up 42.91% from RM441.56 million raised in 2019.

For ECF issuers, 57% raised the money for business expansion while 97% of P2P financing issuers raised funds for working capital.

Among the steps the SC took was increasing the upper limit for ECF fundraising to RM10 million from RM5 million per issuer, and widening the scope of eligible ECF issuers to companies with up to 10 million paid-up capital from the initial RM5 million.

In addition, a secondary trading framework for ECF and P2P was launched to provide investors with an exit mechanism. This enabled early investors to exit from deals they had earlier invested in and provided an opportunity for new investors to take part in deals they might have missed earlier.

Due to proactive restructuring and rescheduling (R&R) strategies for P2P financing platforms, the SC said it has helped issuers remain afloat during this challenging period and limited the increase of defaults.

SC to continue enhancing access to investments via innovative digital solutions

The SC said its Digital Agenda for the capital market gained momentum as a necessity for reduced physical contact shifted many services and activities online. Digital Investment Management (DIMs), digital asset exchanges (DAX), and other online service providers and platforms attracted new investors with a corresponding increase in new account openings and transactions.

In 2020, the SC approved three additional digital investment management (DIM) companies. The services offered by the new DIM companies provide more value-added options for investors, such as spare change investing and differentiated investment strategies.

By end-2020, the DIM companies had acquired 199,224 clients and RM466.20 million in total assets under management (AUM), a significant jump from 23,803 clients with RM74.7 million total AUM as at end-2019.

Meanwhile, the SC's roll-out of more measures under the Brokerage Industry Digitisation Group (BRIDGe) provided the much-needed process enhancements for better online experience.

Following its 2019 rule amendments in relation to non-face-to-face client verification mechanism for online trading and CDS account opening, the SC approved further amendments to the Rules of Bursa Depositories Sdn Bhd in a bid to provide investors with a fully digital onboarding experience.

The new amendments provided an alternative to vet signatures for CDS account opening by enabling application submissions through CDS e-Services. Additionally, in June 2020, Bursa Malaysia offered investors the avenue to open CDS accounts online through the Bursa Anywhere application.

To reduce the use of cheques and further encourage cashless transactions when settling trades, BRIDGe recommended for the industry to be enabled with higher online settlement limits.

Other initiatives that BRIDGe provided included enhanced collection of email addresses for investors and shareholders, and enabling share registrars and Bursa Malaysia to offer e-DRP.

For the Fund Management Industry Digitisation Group (FMDG), it has identified clients' digital onboarding and provision of fund management services as key areas for digitisation.

The digital onboarding is to improve retail investors’ experience when investing in domestic collective investment schemes. For fund management services, it aims to increase convenience and ease of access for retail investors and to digitalise and streamline post-trade and settlement processes.

The FMDG was launched in 2019 by SC, targeting to accelerate the digitalisation of the fund management industry to help enhance investors’ digital experience and improve the operation efficiency of the industry.

SC embarks on three-year joint action plan (2020-2023) for financial planning industry

The SC has embarked on a three-year joint action plan with the financial planning associations to align developmental efforts and areas for reform across the industry.

It also aims to elevate the profile of the industry, attract new entrants and pave the way for the next generation of financial planners.

The joint action plan identifies five strategic priorities and laid out 11 recommendations to grow and transform the financial planning industry into a holistic wealth advisory industry.

“A key recommendation arising from the joint action plan was to enable financial planners to offer advice across a wider range of capital market products, including listed securities and unlisted debt securities.

The SC also allowed for collaborations between financial planners and other Capital Markets Services Licence (CMSL) holders in executing the client’s financial plan. This collaboration would allow for a more efficient and holistic execution of the financial plan as well as to provide a greater value-added service for investors. 

“In the interest of investor protection, financial planners are required to be transparent on any fees charged and to secure clients’ consent before entering into any arrangements,” it added.

Read more stories from the SC Annual Report 2020 here.

Tan Choe Choe