The Financial Services and the Treasury Bureau of the Hong Kong authorities initiated a three-month session on the regulation of crowdfunding actions in mid-December and proposed to ascertain a devoted Crowdfunding Affairs Office to supervise these actions. This might have far-reaching results on way forward for the territory as a monetary hub and innovation heart.
Over the final decade, aided by the web, social media, and different expertise platforms, the idea of crowdfunding has empowered tens of millions to lift capital for his or her ideas, tasks, or merchandise, sometimes on the early stage of growth, all whereas overcoming obstacles erected by monetary intermediaries, equivalent to banks, and different types of paperwork. It additionally enabled and facilitated people to assist revolutionary product growth, area of interest cultural actions, in addition to in style (or not so in style) social causes.
The borderless nature of the web and the actions carried out on it certainly current new challenges to laws beforehand designed for extra conventional types of solicitations for donations, investments, loans, or product gross sales. But that doesn’t imply that crowdfunding actions are unregulated. Indeed, the session paper identified varied present legal guidelines and laws in Hong Kong, such because the Securities and Futures Ordinance and the Money Lenders Ordinance, that would supply jurisdiction over such actions, notably crowdfunding for fairness, debt, or peer-to-peer lending.
The paper even states that, normally, anybody partaking in any on-line or offline fundraising to “engage in unlawful acts (such as money laundering, fraud, theft, acts and activities endangering national security, or inciting, aiding, abetting or providing pecuniary or other financial assistance or property for other persons to commit offenses that endanger national security)” is already topic to prosecution below felony legal guidelines in Hong Kong. So why is there such an pressing want for erecting additional safeguards?
That clearly has to do with the flurry of crowdfunding initiatives in Hong Kong in the course of the 2019 protests, with essentially the most notable case being the 612 Humanitarian Relief Fund. The fund was initially set as much as present monetary assist for these injured or arrested in the course of the unrest. Cardinal Joseph Zen and ex-lawmakers Margaret Ng and Cyd Ho had been among the many high-profile fund trustees who had been later arrested, prosecuted, and lately convicted. Indeed, the session makes reference to people who claimed “they would use the funds raised to help people in need, but they turned out to be using the funds for purposes which were unlawful and jeopardized public interests, public safety, as well as national security.”
Political Vetting, Extended Globally
The proposed Crowdfunding Affairs Office (CAO) would require prior functions for any crowdfunding exercise that “raises funds from individuals or entities of Hong Kong, or individuals or entities located in Hong Kong.” That situation is additional defined within the paper to incorporate not solely these positioned or registered in Hong Kong: “the location of publicizing such activities can be any places, including Hong Kong and other places, and with declared purposes that are related to Hong Kong or not.” In different phrases, the regulation applies to anybody, anyplace, for something, as solely decided by the CAO. The authorities additionally proposes to additional specify the police’s energy to request monetary data; enter, search, and detain properties together with monetary property; and lower off or halt digital messages.
While the paper acknowledges that “crowdfunding activities are already subject to the regulation of various authorities and existing legislation,” and so, duplication of efforts needs to be averted, that could be precisely what the CAO finally ends up being. The new workplace is just not about imposing new laws, however solely serves to make sure that there’s a centralized mechanism to vet towards sure undesirable political actions which are virtually non-existent for the reason that imposition of the National Security Law in July 2020. Indeed, the paper made repeated mentions of “public interests, public safety, and national security” because the justification for the proposed laws.
On the opposite hand, sarcastically, it really states clearly that the CAO’s resolution to approve any exercise or not has nothing to do with its final result or success, and contributors to even an permitted fundraising exercise should themselves “carefully examine the credibility and success rate of the activity to be supported to avoid unnecessary losses” — a disclaimer by the federal government that what the CAO does is just not about donor or investor rights safety. It’s simply political vetting, prolonged globally.
Everyone Will Have Something to Lose
So what ought to crowdfunding platforms, monetary establishments, web platforms, these in search of funding assist, and potential donors or contributors to tasks be fearful about? Loads.
The paper proposes the introduction of a “real name” system for donors, and fundraisers must hold that register of donors together with different particulars of their actions for auditing in addition to inspection by the CAO and different regulation enforcement businesses. The further paperwork and potential liabilities will flip off fundraisers, and the required disclosure of identities will trigger a chilling impact, deterring donors and contributors from giving.
It can be nonetheless unclear whether or not income-generating creator actions by so-called key opinion leaders, journalists, or former political figures on platforms equivalent to YouTube and Patreon will fall below the definition of “crowdfunding” within the proposed regulation. The paper cites “commercial activities on online media and the like that involve income from subscriptions or online rewards” as amongst some actions that can be exempted from the regulation. But it could nonetheless rely upon whether or not the CAO ultimately subjectively classifies such actions as purely “commercial” or not. Even although many of those creators are not in Hong Kong, the borderless nature of the proposed regulation means strain can nonetheless be utilized first to the Hong Kong places of work of the platforms, equivalent to Google for YouTube, adopted by contacting these firms with no Hong Kong presence.
For the primary time, the paper additionally proposes focused laws for “online platforms specifically designed for crowdfunding purpose” to register with the CAO, together with offering “at least one person with a physical address in Hong Kong” because the designated consultant of the platform. This can be the primary occasion of such “local designated representative” necessities for internet-related laws in Hong Kong, and it bears a disturbing resemblance to the availability below India’s controversial IT Rules 2021. The so-called “hostage-taking law” that mandates platforms to register native representatives in India to be held liable if the platforms don’t carry out in keeping with the federal government’s censorship requests. Sadly, this primary for Hong Kong is probably not the final.
This strain could also be felt by extra than simply the crowdfunding platforms usually utilized by Hong Kong people, organizations, or entrepreneurs, equivalent to GoFundMe, Indiegogo, and Kickstarter, but in addition subscription or promoting primarily based content material platforms equivalent to Patreon, Medium, and YouTube, in addition to fee platforms like PayPal and Square. Social media platforms equivalent to Facebook, Instagram, or Twitter can even face extra enforcement notices to take away contents or hyperlinks. Fundraisers and platforms alike must re-evaluate the rising liabilities of their presence in Hong Kong.
For these companies with no Hong Kong presence, it’s unlikely that they are going to register with the CAO: They might merely select to not present companies to Hong Kong-related entities and causes. This can be comparable what occurred when the National Security Law was enacted in 2020; shortly afterwards some digital personal community (VPN) suppliers merely selected to shut down their Hong Kong servers.
Unlike different session papers up to now, this one gives no comparability with comparable practices in different jurisdictions, particularly widespread regulation ones. Very doubtless there are none. By disregarding the necessity to stability ease of entry, openness, comfort, and the rights of the fundraisers, contributors, and platforms in favor of the so-called “public interests, public safety and national security,” all within the subjective eyes of the authority, Hong Kong is once more making itself a tougher place to do enterprise for corporations native and abroad. This proposal from its monetary companies coverage bureau doesn’t bode nicely for all of the areas that Hong Kong says it strives to achieve: innovation, expertise, and even monetary companies itself.
Source web site: thediplomat.com