Equity Crowdfunding in Hong Kong: Potential, Challenges, and Investor Protection

Abstract

Equity crowdfunding is a relatively new investment format that allows investors to purchase unlisted securities from a company that does not meet listing requirements for an initial public offering. Equity crowdfunding offers investment rewards but also has risks of fraud, herding, insolvency and dilution of shareholder equity. Regulation is a natural response to negative externalities like systemic risk caused by asymmetric information, adverse selection and lemon problems. While the US and the UK have extensive crowdfunding regulations, Hong Kong does not, although crowdfunding is not specifically banned under the Securities and Futures Ordinance. This article focuses on the current state of equity crowdfunding in Hong Kong but draws inspirations from legal requirements for equity crowdfunding in the US, the UK and Singapore, as well as the Korea Startup Market in South Korea. The author makes regulatory suggestions for consideration by Hong Kong’s law makers and policy makers.