Latest Publictions

2016 Jan/20
U.S. Regulation for Securities-Based Crowdfunding and Implications Survey Papers 15-08 PDF
Crowdfunding is a compound word of “crowd” and “funding”, meaning a practice where those in need of money raise, in principle, small-scale funds from the general public via specialized intermediaries mostly over the internet. Since the advent of those intermediaries such as IndieGoGo and Kickstarter that employ the web 2.0 mechanism enabling two-way communication on the internet, crowdfunding has taken hold as a popular fund-raising mechanism.
Depending on the funding purpose and consequent benefits in return, crowdfunding can be classified into four types: (1) donation-based, (2) reward-based, (3) lending-based, and (4) securities-based crowdfunding. Donation- and reward-based crowdfunding are regarded as a non-profit or non-investment type because they do not seek profits in exchange for providing funds. By contrast, lending- and securities-based crowdfunding are grouped into profit or investment type crowdfunding in the respect that profits are expected in return. In the history of crowdfunding development, non-profit or non-investment crowdfunding first emerged, and profit or investment crowdfunding followed suit connecting crowdfunding to profit-seeking.
Both the US CROWDFUND Act stipulated in Title III of the JOBS Act and the Korean crowdfunding regulation set forth under the Financial Investment Services and Capital Markets Act (FSCMA) target the last type, i.e., securities-based crowdfunding. The key elements of Korea’s crowdfunding regulation modeled after the US CROWDFUND Act. 
Korea’s and the US’s securities regulations have two key elements in common. First, both require registration statements filing for public offerings. By definition, securities-based crowdfunding takes the form of public offerings because it solicits the general public through the internet. However, preparing and filing a registration statement can be onerous for startups tapping into crowdfunding for small-scale funding. Thus, the CROWDFUND Act and the FSCMA place exemptions from the registration statement requirement. Second, both regulatory frameworks place entry barrier requirements for financial intermediaries, but this can be hardly met by crowdfunding platforms that lack knowledge and sufficient resources for regulatory compliance. For this reason, the CROWDFUND Act and the FSCMA deregulate entry barriers for crowdfunding intermediaries. With regard to this, both legislations adopt several alternative steps to mitigate potential risk and to ensure robust investor protection.
Despite the aforementioned similarities, the US and Korea have the following differences. On October 30, 2015, the US adopted Regulation Crowdfunding, detailed enforcement rules for the CROWDFUND Act, to address potential problems found in the CROWDFUND ACT and facilitate capital formation. Among others, Regulation Crowdfunding includes the following details that provide Korea with ample implications: Issuer disqualification requirements, no integration of the issue amount, detailed disclosure items, early closing processes, provision of investor education, communication channel regulation, promoter regulation, financial interest rules, advertisement, safe harbor for intermediaries, relaxed ongoing disclosure responsibilities, etc.
In conclusion, from the comparative law perspective, rules prescribed under Regulation Crowdfunding are more sophisticated and better constructed than the Korean regulation. In fact, Korea’s crowdfunding regulation leaves much to be desired in many ways, especially, procedural protection or the range of items to be disclosed for the sake of investor protection. Korea’s crowdfunding market is scheduled to kick off on January 25, 2016. It is desirable to closely monitor market responses to take supplementary measures for developing Korea’s regulatory framework into a more complete one. Also necessary would be making further improvements by taking a look at Regulation Crowdfunding for reference.