report of field research - laleading/news/news/pdf/20150707.pdf · report of field research an...

Report of Field Research

An Internet Financial System Regulation Study –

Based on Peer to Peer Lending

PhD Student

Chen Hung Yi

Contact:

[email protected]

Report Date

July 6, 2015

Field Research Duration

From June 26 to July 3, 2015

3


Chen Hung-Yi | Leading Program

The Purpose Crowdfunding becomes prosperous in Asian countries in 2015. Crowdfunding is a mechanism to provide new and

easy fundraising channel in capital market, especially for startups and SMEs since they do not have enough credit

and collateral to prove their ability of return

Therefore, they face the difficulties to raise capital by conventional fundraising ways, such as getting loan from banks, issuing stocks and corporate bonds. In order to solve abovementioned issues, Malaysia is the first country in Asia enacting the new exemption rule of their Securities Act for crowdfunding on February. Both Taiwan and Thailand established the mechanism of crowdfunding on May. China and Singapore are also considering to draft new legislation to provide new fundraising channel for their SMEs and startups since the difficulties to raise funding from capital market for SMEs is universal problems in the world.

However, comparing with European countries, the financial regulation of crowdfunding in Asian countries is still at initial stage. Although it is a milestone for Asian countries to commence investment crowdfunding to fill the gap within the capital markets, there remain several problems for this new mechanism. Take Taiwan for example, first, the cap of the amount for an issuer may be too small. The total amount of issuance of each issuer in one fiscal year must be under 15 million TWD (around 0.49 million USD). This amount may not help many entrepreneurs to start their business.

Second, investors may not be as interested because of the small amount they can invest and the fact that preferred stock is forbidden under crowdfunding. The investment of startups is always risky, but high risk may lead to high returns. But under the regulations for

crowdfunding in Taiwan, even the investors that can afford high risk with their money, they can generate too small of a return. Third, the capital amount of crowdfunding platform is not so flexible. With the development of crowdfunding for several years in the world, there are different business models of crowdfunding. The capital amount of 50 million TWD (around 1.6 million USD) is still too high for certain crowdfunding platforms.

On the contrast, with the effort of government Minister in France, Fleur Pellerin, crowdfunding (financement participatif) is already in force last year. The framework of crowdfunding can be borrowed into Asian countries since they are much more focusing on encouraging business rather than over emphasizing the right of investors, which includes (1) The requirement of crowdfunding platforms, (2) The disclosure duty and the cap of issuing stock for issuer, and (3) The compromising balance between investors and development of SMEs and startups.

4



The plan of this field research

Make presentation in Conference held in Paris by Fordham Law School

In order to achieve the abovementioned research goal, I submitted my article of current research to 2nd Annual International & Comparative Urban Law Conference held at Sorbonne Law School in Paris by Fordham Law School and Sorbonne Law School and already be accepted. I will introduce the current situation of crowdfunding development and problems in Asian countries. Then, the article will also address the current regulation in the European countries and how it can be taken into consideration of further amendment of crowdfunding regulation in Asia. I will also want to exchange opinions and accept the suggestions from peers and audiences in the conference.

Interviews with officials in European Union and practitioners in Paris

Besides, I also contacted the professor in Center of European Policy Studies of European Union, Dr.

Wolfgang Pape. I will go there and visit specialists there and realize the background of crowdfunding in Europe and how they can establish the mechanism of crossborder in European Union since it is also important for ASEAN countries to borrow this experiences and activate the capital market of region in Southeast Asia.

After overviewing the framework of European Union, I also contacted the professor there to realize the current academic debates of crowdfunding in France. And I will also meet the lawyer in Paris to examine how the crowdfunding works under the financial regulation since the crowdfunding in the United States is too strict for crowdfunding platforms operating their business.

6



Paris

2nd Annual International &

Comparative Urban Law

Conference,

Sorbonne Law School

Whole day, 29 June 2015

The abstract of my presentation (15 minutes)

Crowdfunding is a mechanism of fundraising on the Internet without a conventional financial institution as agency, especially for small and middle enterprises (SMEs). This is an intermediary system for people raising funding much more easily and efficiently. The difficulties for SMEs to raise funding from capital market are universal problems in the world. Under

consideration of efficient fundraising, Malaysia, Taiwan and Thailand are already provided regulation toward crowdfunding. The financial authority of China and Singapore are also drafting the bill of crowdfunding in early 2015.

With the development of crowdfunding for several years, it also provides citizens an alternative way to participate public affair and raise capital they need. In 2014, there is a crowdfunding campaign by citizens in Taiwan which raise up 11,984,994 TWD (around 387,481 USD) from 11,523 people only in 45 hours to

My presentation in Conference at Sorbonne Law School

Annual International & Comparative Urban Law Conference is held by Sorbonne Law School and Fordham Law

School. And I made a presentation entitled “Crowdfunding in Asian countries and its interaction with citizenship”.

organize a group recalling three controversy congressmen representing of Taipei city. This campaign was not held by any parties or organizations but a combination of citizens who did not know each other before. This campaign successfully promotes the idea of citizens by using crowdfunding to engage public affair by citizens. This is an innovative way for citizens having more opportunities to engage public affair.

Additionally, there are some local governments in the United States using crowdfunding to fulfill the gap of insufficient budget and also attract citizens invest their funding into public projects. Moreover, there are drafting bills in Hawaii and New Jersey for government using crowdfunding to raise capital for public projects. This model enhances the citizenship and government transparency. City can take this model into consideration for further development of enhancing citizenship and raising capital for project without enough budget by crowdfunding.

26 June - Go to Paris, France

Lufthansa Flight LH-737

Lufthansa Flight LH-1040

7



Feedback from audiences

Q1. Michele Finch (Lecturer, University of Oxford)

As you mentioned in your presentation, there are many citizens organizing a campaign to attract donation from people on the Internet, what is your opinion if this funding be embezzled?

A1. Chen Hung-Yi

Thank you very much for your interesting question. I think it is very critical issue for further development of crowdfunding using by citizens. Currently, there are already some controversy social crowdfunding campaign in Taiwan. And I think we should think about how to establish a disclosure mechanism for such kind of social crowdfunding. On one hand, we can promote this mechanism. On the other hand, we can also protect the right of donors.

Q2. Nadav Shoked (Assistant Professor of Law, Northwestern University)

Could you explains more about social crowdfunding? I mean how to distinguish donation by crowdfunding and by traditional channel? Are there any differences? Should we need to provide new regulation toward this new industry?

A2. Chen Hung-Yi

Before answer your question, I would like to give you an example relating to your question. Let’s think about online payment. We already have regulation toward credit card, debit card and wire transfer, why we still need some regulation toward online payment? Although the purpose of online payment and credit card is paying we need, online payment is much more convenient. In other words, it may relates to cross-border issue, money laundry because of anonymous. In crowdfunding donation, there are numerous donation from everywhere in the world, and most of platforms do not have enough ability to do legal compliance under current regulation. We have to design a new legal framework which is suitable for it.

Q3. Carlo Maria Colombo (post-doctoral researcher, University of Tilburg)

Could you explain more how local government can use crowdfunding to raise up capital for public project?

A3. Chen Hung-Yi

For example, in 2011, there is a rural city called Glyncoch in the United Kingdom. They wanted to establish a new city community center for more than 7 years. However, this budget is not so urgent as constructing the road. Therefore, they cannot be successful realizing their project. Finally, they use

crowdfunding website to raise up capital around 800,000 GBP to finish their projects. And as my research study, I also found there are also some local government trying to propose drafting bill to use crowdfunding. For instances, in New Jersey, they wanted to give local government authority to use crowdfunding. Moreover, they also allow local government to give benefit to investors. It is much more like Private and Public Partnership. But every citizens have opportunities to participate public affair.

Q4. Valero Lubello (Researcher, University of Bocconi)

Could you explained more the case that Germany local government use crowdfudning to raise up capital for solar panel system? Are there any English website or English articles I can read to access more information regarding this issue?

A4. Chen Hung-Yi

Currently, there are just few cases using crowdfunding for solar panel system which share benefits with shareholder of citizens. In other words, government supervise the project, company provide the skill, and citizens provide their capital. I will send you the article

entitled “Here comes the Sun: How Securities Regulation Cast a Shadow on the Growth of Community Solar in the United States”. Although this paper is not directly introducing the Germany mechanism, I think it

also showed the similar idea.

8



Presentation Slides

9



10



Contribution to my research

While crowdfunding and its financial regulation have been extensively discussed, interaction between crowdfunding and citizenship is relatively unexplored. This paper studies crowdfunding campaigns in Taiwan, which provides citizens an innovative way to participate public affair. Additionally, this article also introduce how government can use crowdfunding to raise funding for certain public project from citizens by introducing the mechanism in the United States.

With the social capital from citizens, crowdfunding not only provides government a fundraising tool but also enhances participation from citizens. Namely, crowdfunding also encourages the right of citizenship. The findings suggest that the possibility of urban government using crowdfunding to realize the project which does not have enough budget or high priority and enhance government transparency by participation of

citizens.

11



Cambridge

Cambridge Centre for

Alternative Finance,

University of Cambridge

12:00~13:30, 30 June 2015

Interview Questions

-The right of investors

In order to protect the right of investor under crowdfunding investment, each country enacted the cap amount of investment from general people. How is the policy of European Union to compromise the different criteria in each country?

- Current framework of financial regulation

Under the regulation of Directive 2004/39/EC, crowdfunding platform may apply for license to do business among members of EU. However, this regulation is not specific rule for crowdfunding. Due to encouraging the development of SMEs, the crowdfunding platform may meet the difficulties to operating their business cross border. Are there any new draft or rule solving this situation?

Bryan Zheng Zhang, Director, Cambridge Centre for Alternative Finance, University of Cambridge

University of Cambridge

This meeting was focus on research cooperation with Cambridge Centre for Alternative Finance (CCAF) and also

collected the materials regarding peer to peer lending and crowdfunding published by CCAF.

Contribution to my current research

Cambridge Centre for Alternative Finance (CCAF) is partnering with Tsinghua University Graduate School at Shenzhen and the University of Sydney Business School on conducting the Asia-Pacific/China alternative finance benchmarking research.

Since I am doing the research of Mainland China, Taiwan and Japanese regarding crowdfunding and p2p lending market, Mr. Zhang would like to collaborate with me during this benchmarking research in 2015. Now we keep contact to share information for further

development of research.

12



Brussels

Center of European Policy

Studies, European

Commission

13:00~16:00, July 1 2015

Head Quarter of European Commission

Since the economy of Greek becomes serious during my interview in European Commission, Dr. Wolfgang Pape decided to take us to go to the press of Greek economy. I learned how people communicate in world press and how journalist asking critical questions.

And I introduced my research, peer-to-peer lending, to Dr. Wolfgang and Mr. TANIGUCHI, they provided me some information regarding to my topic. During lunch time, we talked about the issue in Taiwan, such as student movement in 2014, conflict between China and Taiwan.

Information center of European Commission

Dr. Wolfgang led us to Information center of European Commission. And I collected some materials relating to

Dr. Wolfgang Pape

Thanks to the social connection of Nagoya University and M1 student Pawee Jenweeranon, I met with Dr.

Wolfgang Pape and Mr. Nagayo TANIGUCHI in European Commission.

my current topic. And I also found some publication relating to comparative joint research.

Parliament of European Union

Dr. Wolfgang led us to visit Parliament of European Union. And we also learned some basic mechanism how European Commission operating their daily agenda and also how the countries of European Union cooperate and coordinate together.

13



Thank you for leading program giving me this opportunity to support my presentation in 2nd Annual International & Comparative Urban Law Conference and also my filed research in Cambridge and Belgium. I found it is very useful to share our idea in conference. Normally, I struggle to get some new idea. However, I found many interesting ideas in this international conference since the background of each speaker is different. Based on this reflection, I realized I should not always focus on Asia. And I need to notice more information in western countries to broaden my horizon. This time, I also met with many interesting people which may contribute to my further research and also my comparative joint research. I will write down more information as shown on below.

Memo

Valerio Lubello

Valerio Lubello is research at University of Bocconi in Italy. Currently, he is working in Hungary. We talked about the issue of confliction caused by Uber in France. Based on this discussion, he invited me to join his comparative legal research of Uber in the future.

Tracy Pearl

Tracy Pearl is a professor of law at Texas Technology University. I introduced my current research to her. And she would like to introduce her colleague also doing crwodfunding in Texas Technology University. I think I can keep contact and go there for internship in the future.

Kevin J. Fandl

Kevin J. Fandl is a professor of law at Temple University. His interest is focus on cooperate law. Now he also come to Japan for teaching intensive class in Tokyo campus of Temple University. His topic in this conference is local governance of traffic jams. I think it is quite useful for borrowing his experience to contribute our joint research.

Details

Therefore, I also told him the information of becoming special lecturer in leading program since student can apply for inviting a professor.

Nisha Mistry

Nisha Mistry is the director of urban law center at Fordham law school. She is the organizer of this conference. She really want more Asian scholar and researcher to join this conference since it can enhance the diversity of this conference and also can share idea from different perspectives.

Picture with Nisha in front of Sorbonne Law School

report of field research - laleading/news/news/pdf/20150707.pdf · report of field research an...

Documents