Crowdfunding rules in Hong Kong: legal and regulatory compliance for fundraisers

Crowdfunding Rules in Hong Kong Legal Compliance

No single statute governs crowdfunding in Hong Kong. The legal framework turns on the model used: an offer of securities, a loan arrangement, or a simple donation or reward. The Securities and Futures Commission (SFC) regulates offers involving securities. The Money Lenders Ordinance (Cap. 163) applies to debt-based models. Platforms and issuers must also comply with anti-money laundering (AML) obligations.

Hong Kong Crowdfunding Regulations

Hong Kong has no dedicated crowdfunding law. Existing legislation is applied to the activity. The key statutes are:

• The Securities and Futures Ordinance (Cap. 571), which governs offers of securities, including shares, debentures, and interests in collective investment schemes.
• The Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), containing the prospectus requirement for public offers.
• The Money Lenders Ordinance (Cap. 163), regulating lending activities.
• The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), imposing customer due diligence and record-keeping obligations on financial institutions and designated non-financial businesses.

The SFC has issued guidance on crowdfunding. A 2018 statement addressed equity crowdfunding. A 2020 circular covered digital asset offerings. Together these documents clarify when a crowdfunding campaign falls within the SFC's regulatory perimeter.

Crowdfunding Legal Requirements Hong Kong

The legal requirements depend on the crowdfunding model.

Reward-Based and Donation-Based Crowdfunding

Reward-based crowdfunding (backers receive a product or service) and donation-based crowdfunding (backers give without expecting a return) do not trigger securities laws or the Money Lenders Ordinance. The primary legal risk is consumer protection. The campaign must deliver the promised reward or use the funds as stated. If the campaign is for a charitable purpose, the organisers should check whether a public subscription permit is required under the Charitable Fundraising Ordinance (Cap. 623).

Debt-Based Crowdfunding

Debt-based crowdfunding involves a loan from the crowd to the issuer. If the platform or the issuer is carrying on a business of lending, it must hold a money lender's licence under the Money Lenders Ordinance (Cap. 163). Operating without a licence is a criminal offence. The Ordinance also imposes restrictions on interest rates and loan advertising.

Platforms that merely introduce borrowers and lenders without themselves lending may not need a licence. The SFC has indicated that such arrangements may still fall within the definition of "dealing in securities" if the loan is structured as a debenture. In that case, the prospectus requirement and licensing obligations under the Securities and Futures Ordinance would apply.

Hong Kong Securities Law Crowdfunding

Equity crowdfunding involves an offer of shares or other securities to the public. This triggers the prospectus requirement under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). Section 38D of that Ordinance prohibits a person from issuing an advertisement, invitation, or document that contains an offer of securities to the public unless a prospectus has been registered with the Companies Registry.

The prospectus must contain prescribed information: the issuer's financial statements, directors' details, and risk factors. Preparing a compliant prospectus is costly and time-consuming. Most equity crowdfunding campaigns in Hong Kong rely on an exemption.

Exemption Threshold and Professional Investors

The prospectus requirement does not apply if the offer is made only to professional investors as defined in the Securities and Futures Ordinance (Cap. 571). Professional investors include:

• Individuals with a portfolio of at least HK$8 million (or equivalent foreign currency).
• Corporations with total assets of at least HK$8 million.
• Trusts with total assets of at least HK$40 million.

An equity crowdfunding campaign that limits its offer to professional investors can avoid the prospectus requirement. The platform itself must be licensed by the SFC to carry on a regulated activity, such as dealing in securities or advising on securities.

Another exemption applies if the total consideration for the offer does not exceed HK$5 million (or equivalent) in any 12-month period. This exemption is rarely used for equity crowdfunding. The cap is low relative to typical fundraising targets.

Equity Crowdfunding Hong Kong

Equity crowdfunding in Hong Kong is effectively limited to professional investors. The SFC has stated that it will treat any platform that facilitates the offer of securities to the public as carrying on a regulated activity. The platform must hold a Type 1 (dealing in securities) licence under the Securities and Futures Ordinance.

The platform operator must also comply with the SFC's Code of Conduct. That Code imposes requirements on client categorisation, suitability assessments, and disclosure of conflicts of interest. The platform must ensure that all offers are made only to professional investors, unless a prospectus has been registered.

Issuers using an equity crowdfunding platform should be aware that the platform may require the issuer to provide financial statements, a business plan, and a valuation. The platform may also conduct due diligence on the issuer's directors and shareholders.

Anti-Money Laundering Obligations for Platform Operators

All crowdfunding platforms in Hong Kong must comply with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) if they are carrying on a financial institution or a designated non-financial business. For crowdfunding platforms, this means:

• Conducting customer due diligence (CDD) on each investor or backer.
• Verifying the identity of the investor using a government-issued identification document.
• Keeping records of the transaction and the CDD information for at least five years.
• Reporting suspicious transactions to the Joint Financial Intelligence Unit.

The SFC has issued guidance stating that licensed platform operators must implement AML policies and procedures that are proportionate to the risk of money laundering and terrorist financing. Platforms that are not licensed but still handle funds should also adopt AML measures as a matter of good practice.

Practical Compliance Steps for Campaign Organisers

Before launching a crowdfunding campaign in Hong Kong, organisers should take the following steps:

1. Determine the crowdfunding model. If the campaign involves an offer of securities, the prospectus requirement or the professional investor exemption applies.
2. If the campaign involves lending, check whether a money lender's licence is required.
3. If the campaign is for a charitable purpose, check whether a public subscription permit is needed.
4. Select a platform that is properly licensed or regulated for the type of crowdfunding being conducted.
5. Ensure that the platform has AML procedures in place and that the campaign's documentation includes clear terms and conditions.

The legal framework summarised above does not constitute legal advice. Organisers should consult a solicitor experienced in Hong Kong securities law and the Money Lenders Ordinance before launching a campaign. The SFC's website (www.sfc.hk) publishes guidance on crowdfunding and the regulatory requirements for platform operators.