/ Author: Jacqueline Escobar (Peru) /

The Government of Peru published in the official newspaper "El Peruano" Title IV of the Emergency Decree No. 013-2020 "Rules that regulate and supervise the activity of crowdfunding", hereinafter DU, where the Superintendence of the Stock Market (SMV) has been designated as the regulatory and supervisory entity for crowdfunding activity.

Hardly the issuance of a standard has the possibility of causing so much impact on a financial market. However, the legal recognition of financial crowdfunding - which is called to transform the financial industry - implies great potential in the development of financing and investment in Peru.

But what does the realization of this potential depend on? Although the private sector is the main protagonist of the growth of the industry, regulation plays an important role in strengthening trust in society.

As has happened with the experience in Mexico and Colombia, it is from the rules and limitations that are chosen for the crowdfunding market participants, that their growth can be encouraged or limited. Because of this, the participation of all stakeholders interested in the development of this market is important.

Then, in the context of a forthcoming publication of the SMV Resolution with the DU regulation, we comment on 6 relevant issues to consider for its next regulation.

The 6 relevant issues to consider in promoting the development of crowdfunding in Peru are the application of the public policy of "Regulatory Impact Analisys" (RIA), Innovation Hubs vs.. Regulatory Sandbox, Digital Economy, Step Regulation, Risk Policy Limits and Other Crowdfunding Modes.

RIA: Towards a “participatory” crowdfunding regulation

The citizen participation is materialized in the comments that can be made from the citizen consultation that the SMV announces about a specific regulatory project.

However, the Government is making significant progress in the implementation of the Regulatory Impact Analysis (RIA), through Peru's entry to the Organization for Economic Cooperation and Development (OECD) ).

The "RIA" is a public policy tool in which both the benefits, costs and possible effects of a regulation are evaluated both before (ex ante) and later (ex post), in order to achieve its quality , based on basic principles of rationality and proportionality.

In this analysis the interaction with the public is high. For example, public consultation involves interested parties through public hearings, advisory tables and informal consultations, thus generating a perception of the regulation's belonging to the regulation.

In the case of crowdfunding regulation (called “Participatory Financial Financing” in Peru), the application of the RIA is more than necessary.

Innovation Hub vs. Regulatory Sandbox

According to the DU, the SMV has been empowered to determine: i) new obligations, responsibilities and prohibitions to those established in the DU with respect to the participatory financial financing management companies and; ii) the conditions under which exceptions may be granted to the obligations and other provisions set forth in the DU.

This power to establish exceptions to a rule with the rank of law for the SMV is very required in all the regulations that it monitors because "innovation" always goes one step further than regulation.

So, it has been well done by recognizing this reality for the crowdfunding market, so that the regulator can adapt its rules to the extent that market development requires it, without having to go to the Congress of the Republic of Peru to carry out a change in the DU.

In addition to this, we have the possibility that the SMV and the Superintendence of Banking, Insurance and AFP (SBS) can establish the temporary realization of activities through innovative or innovative models, as well as the conditions or provisions necessary for their development.

This would leave a clear sample of the openness of regulators to the "fintech" business models that are yet to come, picking up the well-known regulatory "Sandbox" that have been implemented in other countries.

However, it is important to take into account the analysis of the effectiveness and costs that a regulatory Sandbox requires, compared to an Innovation Hub, which are a point of contact between the regulator and regulated, where the latter can find a guide for development of your business more freely.

Digital economy

The provision contained in Law No. 30050, which states that all advertising of financial assets could only be carried out by authorized or supervised subjects by the SMV and the SBS has been modified by the DU, stating that the prohibition now falls on advertising related to financial assets under the jurisdiction of the SMV and the SBS, which is carried out in order to obtain money from the public in exchange for a financial return, under any modality.

This represents a great opportunity to analyze and introduce the creation of a new securities through the use of digital assets or "tokens" to obtain financing, as well as hybrid instruments that share the characteristics of capital and debt instruments.

This could allow SMV to contribute to the development of the digital economy by providing more information on the application of business cases using blockchain technology such as Security Token Offering (STO).

Step regulation

To the extent that the Management Companies can manage greater funds from investors and raise more financing for companies, the regulation would be expected to be proportional and progressively staggered.

A good example has been the implementation of the Savings and Credit Cooperatives (COPAC) of the SBS where it has begun with a registry and levels of regulation according to the exposure of risk assumed necessary for its activities. However, high-tech financial services will require technology-based regulation, or known as "RegTech."

The minimum capital, financial requirements, the sanctioning regime and other requirements such as offering guarantees must meet the risks and the size of the Management Company.

Limits of risk policies

It is understandable that Peru seeks to follow the trends in regulation that have been applied to crowdfunding in other countries for the application of the maximum limits of the risk policy regarding the resources to be collected per financing project (limits per instrument of debt or capital), by recipient of the financing (limits by issuer of the instrument), as well as limits to unqualified investors (limits of exposure to risk with respect to total equity).

Apparently, the limitations are intended to protect investors, but the real effect may be to kill the industry. This has been understood by the regulations in New Zealand, Lithuania and Singapore, which in addition to the information obligations, in the last two cases have established that it is the knowledge of the investor and not his assets that limits him from accessing a financial vehicle such as crowdfunding.

Other crowdfunding modalities

On this point, it is necessary that the SMV first take into account the specific treatment that can be given to the "Invoice Trading" model through "crowdfactoring", where certain information disclosure rules established for the recipient of the financing should be adapted considering that credit risk relies primarily on the "acquiring companies" of the goods and services of the invoices.

In FintechLab we help you in the application process to obtain authorization for crowdfunding companies. Contact us and tell us your project. To learn more about the fundamentals of our opinion, we invite you to read the full note here.