REGULATORY REQUIREMENTS FOR CROWDFUNDING PLATFORMS IN INDIA
Crowdfunding platforms in India are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Crowdfunding) Regulations, 2021. These regulations provide a framework for crowdfunding platforms to operate and ensure investor protection.
Any entity that intends to operate a crowdfunding platform in India must obtain a license from SEBI. The licensing process involves submitting an application along with the necessary documents and paying the requisite fees. SEBI reviews the application and may request additional information or clarification before granting the license
The regulations require crowdfunding platforms to comply with several requirements, including:
ELIGIBILITY CRITERIA FOR INVESTORS:
Crowdfunding platforms are required to ensure that only eligible investors participate in crowdfunding campaigns. Eligible investors include accredited investors, qualified institutional buyers, and retail investors with certain minimum net worth or income criteria.
DUE DILIGENCE ON ISSUERS:
Crowdfunding platforms are required to conduct due diligence on issuers before allowing them to list their securities on the platform. The due diligence process must include a review of the issuer’s business plan, financial statements, and management team.
DISCLOSURE REQUIREMENTS:
Crowdfunding platforms are required to provide investors with full disclosure of all material information about the issuer and the securities being offered. This includes information about the business, financials, risks, and any other information that may be relevant to an investor’s decision to invest.
INVESTMENT LIMITS:
Crowdfunding platforms are required to set investment limits for investors based on their eligibility criteria. For example, retail investors may be limited to investing a maximum of INR 10,000 per issuer, while accredited investors may be allowed to invest a higher amount.
ESCROW MECHANISM:
Crowdfunding platforms are required to use an escrow mechanism to collect and hold funds from investors until the campaign is closed. This ensures that the funds are used only for the purposes stated in the campaign and are not misused by the issuer.
INVESTOR GRIEVANCE REDRESSAL:
Crowdfunding platforms are required to have a mechanism in place to address investor grievances. This includes a process for investors to lodge complaints and a system for resolving disputes.
REPORTING REQUIREMENTS:
Crowdfunding platforms are required to submit regular reports to SEBI, including information about the issuers listed on the platform, the funds raised, and any complaints or grievances received from investors.
Non-compliance with these regulations can result in penalties and fines imposed by SEBI. SEBI has the power to suspend or cancel the license of a crowdfunding platform if it is found to violate the regulations.
CONCLUSION:
Operating a crowdfunding platform in India requires obtaining a license from SEBI and complying with the SEBI (Crowdfunding) Regulations, 2021. Crowdfunding platforms must conduct due diligence on issuers, disclose all material information to investors, set investment limits, use an escrow mechanism, have a mechanism in place for addressing investor grievances, and submit regular reports to SEBI. Non-compliance can result in penalties and fines, and even the suspension or cancellation of the platform’s license