The article originally published on if24.ru

Astana International Financial Center (AIFC) has adopted new rules for regulating investment crowdfunding. This will enable startups, as well as small and medium enterprises, to raise loans and equity investment from a wide range of investors, by posting project information on an authorized online platform.

Photo credit: aifc.kz

Kazakhstan became the first EAEU member state to legalize financing mechanisms alternative to bank lending, while focusing on investment security. Risk-oriented rules were developed by IAFC, with the involvement of EBRD specialists, with which the financial regulator has established active cooperation.

IAFC, which sees its goal in developing financial innovations, finds it crucial to bring the regulations in compliance with the latest trends in the industry and the leading financial practices. IAFC’s regulatory documents have already been updated with the rules for circulation of private electronic currencies and private securities placements. Now “people’s financing” has also been regulated. The focus, as usual, is on protecting the investors and market integrity.

Experts say crowdfunding services enable small and startup companies to find the capital for project development when bank financing is not available due to regulatory restrictions and prohibitive loan costs. This way, crowdfunding works to develop business ecosystem, create new jobs and increase international competitiveness of Kazakhstan and the entire region at the same time.

The new regulations on crowdfunding platforms’ operations are flexible and risk-oriented. The document describes specific requirements and business rules for crowdfunding platform operators. This includes requirements related to such issues as combatting money laundering and financing of terrorism, limiting the maximum amount of funding raised, and introducing controls. To protect the investors’ rights, platform operators are also obligated to disclose information on conflict of interests and conduct due diligence on companies using the platform services.

Astana also offers new market services to manage investment or lending platforms.

Photo credit: aifc.kz

Statistics show crowdfunding investment services are growing in popularity worldwide. Investment volume has increased from $3 billion in 2071 to $3.7 billion in 2018. The figure is expected to double by 2022.

“Regulatory anarchy is an investor’s worst nightmare, but sometimes laws look more like a slipknot than anticipated and comfortable regulation”, says Konstantin Ordov, professor at Plekhanov Russian University of Economics, chair of financial management. “In this case the regulations keep the balance between the interests of market regulators and players, determining the rules of the game, guarantees and lawful interests in the dynamically developing venture investments market. Crowdfunding can easily become a convenient and safe alternative to the crypto market, and has already disrupted bank lending in some countries. It is a pity Russia doesn’t pay as much attention to future-oriented and alternative investment methods, as it is obvious that the pioneers in this process will take the cream and gain sizeable competitive advantage.”

The new crowdfunding regulations introduced by AIFC are important for the business throughout EAEU.

“Russia, like many other countries in the Eurasian Region, does not have any government instruments for regulating the crowdfunding sector. Investors have no guarantees, no mechanisms to protect and enforce their rights, no requirements to investment platforms and no restrictions on the maximum investment amount are in place”, says Alexander Borodich, venture investor and the founder of Universa blockchain platform. “IAFC’s crowdfunding regulations will protect the investors, which means digital platforms operating under their jurisdiction will look much more attractive and promising for investment.”

Russian startups are not seeing the effect of IAFC news on their business, but they are eagerly watching as the events unfold.

“IAFC and its partners writing laws on crowdfunding is very important news, even though it is not exactly clear how this would affect new projects starting in Russia”, says Vladislav Sudyin, IT entrepreneur and director of StartON/5 Element accelerator. “It is, however, obvious that Kazakhstan is moving in the right direction — the state should not build barriers to the players in this market, but instead promote their collaboration and interaction.”

By Anna Oreshkina