You are currently viewing a new version of our website. To view the old version click .
MDPIMDPI
Search all articles
Laws
Download PDF
  • Article
  • Open Access

11 January 2023

Design of Equity Crowdfunding in the Digital Age

,
and
Faculty of Law, Universitas Islam Indonesia, Sleman 55584, Indonesia
*
Author to whom correspondence should be addressed.
Laws2023, 12(1), 8;https://doi.org/10.3390/laws12010008
Version Notes
Order Reprints
Review Reports

Abstract

Equity crowdfunding is a form of alternative financing for MSMEs in Indonesia. However, the provision of equity crowdfunding still has various issues that boil down to the absence of guarantees of legal certainty for the parties. This, of course, can hinder the development of equity crowdfunding itself in the MSME financing scheme. For this reason, the review of this is carried out based on normative legal research, where it examines various applicable legal provisions in regulating equity crowdfunding. Studies are also based on statute, comparative and conceptual approaches. The result is that, first, the arrangement regarding equity crowdfunding has not provided guarantees of legal certainty for the parties; second, many countries develop equity crowdfunding regulatory frameworks that are oriented to guarantee legal certainty for the parties; and third, the design of equity crowdfunding arrangements that provide guarantees of legal certainty to the parties can be made in the form of co-regulation arrangements.

1. Background

The development of technology brings a breath of fresh air to the financial industry with the emergence of financial technology. Financial technology can be interpreted as the utilization of information technology developments to improve services in the financial industry. Another definition is the variety of business models and technological developments that have the potential to improve the financial services industry. One type of fintech that is quite the centre of attention these days is crowdfunding (International Organization of Securities Commissions 2017).
Crowdfunding is a relatively new phenomenon in the financial industry. Crowdfunding is touted as a revolutionary method of business funding because it can be an effective means to raise capital through the Internet media of a large group of people around the world to turn their ideas into a project or business (Dresner 2014, p. 3).
The rise of crowdfunding and its rapid expansion into the market were among the results of the global financial crisis. During economic crises such as the one that began in 2007–2008, it becomes increasingly difficult to find financial resources. Crowdfunding emerged as one solution, allowing businesses to overcome the obstacles of the global economic crisis (Müllerleile et al. 2014, p. 277). Crowdfunding creates new jobs and encourages economic recovery that breathes new businesses into starting businesses and at the same time motivates investors.
There are several types of crowdfunding in practice, namely donation-based crowdfunding, equity-based crowdfunding (Equity Crowdfunding), peer-to-peer lending, and reward-based crowdfunding. Some types of (Hossain and Oparaocha 2017, p. 4) crowdfunding have been commonly used in many countries, both in developed and developing countries. For example, in Indonesia, donation-based crowdfunding is used by kitabisa.com platforms; peer-to-peer lending has mushroomed in Indonesia and equity-based crowdfunding also exists, for example, in the Santara and Crowdana platforms.
The existence of equity crowdfunding (ECF) as a fintech can be run with the aim to increase financial inclusion for businesspeople. Data on the development of ECF in developed countries such as South Korea—which began to be introduced in 2016—has managed to raise funds of USD 72 billion involving as many as 432 issuing companies.1 In addition, a number of countries in Europe, particularly the UK, Germany, and France, have enacted regulations that do not restrict investors but rather protect and promote them, which has come to be called investor-protection-oriented policies. As a result, it is natural that these countries have a record high volume of investment from the public. However, there are also some other countries in Europe, such as Spain and Italy, that apply the opposite approach, namely the restrictive approach, wherein, through this approach, investors are over-protected, causing them to be reluctant to invest (Cicchiello et al. 2020).
The phenomenon of state policy responses to the rapid development of the crowdfunding industry indirectly, whether we like it or not, shows that the state has no other choice in responding to the crowdfunding industry but to respond to the challenges in the field of entrepreneurial finance proportionally and ensure protection for investors. This then does not rule out the possibility of giving rise to two forms of domestic regimes with the tightening and strengthening of regulations and financial regimes with an orientation to adjust to the needs of the crowdfunding market and local investors. Therefore, a country’s government must be able to encourage the growth of crowdfunding by implementing integrity policies that cover the guarantee of internal market stability and facilitate the creation of competitive market conduciveness. Thus, it is hoped that the minimization of information asymmetry and increased transparency and investor protection can be created (Cicchiello and Leone 2020).
In Indonesia, ECF started to exist in early 2018; at that time, there was no regulation governing ECF in Indonesia. At that time, Santara had started an ECF business with ECF-based tokens or coins instead of stock or equity. At the end of 2018, regulations related to ECF in Indonesia by the Financial Services Authority were issued. OJK has issued regulations in the form of Financial Services Authority Regulation Number 37/POJK.04/2018 on Urun Dana Services Through Information-Technology-Based Stock Offerings (Equity Crowdfunding”) (“POJK 37/2018”). In December 2020, OJK issued the latest regulation related to the Financial Services Authority Regulation No. 57/POJK.04/2020 on Securities Offerings through Information-Technology-Based Urun Dana Services (“POJK No. 57/2020”).
Based on POJK No. 57/2020, in the Urun Dana service activities, there are three parties involved, namely the organizer, issuer, and financier. The organizer is an Indonesian legal entity that provides, manages, and operates the Urun Dana service. The issuer is an Indonesian legal entity in the form of a limited liability company that offers shares through the organizer. The financier is the party who purchases the issuer’s shares through the organizer.2
Until now, there have been four Urun Dana service providers who have permission from OJK, namely Santara, Bizshare, Crowddana, and Landx. The Santara platform, managed by PT Santara Daya Insiparatama, is the first Urun Dana service platform and is the market leader in this industry. Santara is the first equity crowdfunding platform to receive permission from OJK based on Decree Number: KEP-59/D.04/2019.3 Up until the fourth week of May 2020, Santara was recorded to have raised funds of more than IDR 45 billion, which has been distributed to 41 publishers. Up until the fourth week of May 2020, Bizshare is recorded to have raised funds of more than IDR 26 billion, which has been distributed to 26 publishers.4
In Indonesia, business actors are also dominated by micro, small, and medium enterprises (MSMEs), which also have enormous potential to be scaled up. Based on data on the number of MSMEs in 2020 in Indonesia, approximately 64 million, 41 million MSMEs are related to financing and banking institutions; beyond that, there are 23 million MSMEs who do not have access to funding.5
Obstacles for MSMEs to access capital from banking investment are the absence of collateral and the amount of interest on incriminating loans for MSMEs. This happens because the banking institution approach still uses a collateral-based approach instead of a project-based one. Urun Dana’s service still has the potential to be developed, so it can be one solution to overcome these obstacles.
With the platform, fund providers who have obtained permission from OJK will be able to spur on the development of Urun Dana services in Indonesia. The development of the ECF industry in Indonesia must be accompanied by protection for the parties in it, namely Urun Dana service providers and Urun Dana service users. What is meant as a user of the service Urun Dana is the issuer and financier. The issuer is an Indonesian business entity both in the form of legal entities and other business entities that issue securities through the Urun Dana service.6 The financier is the party that purchases the issuing securities through the Urun Dana service.7
Protection of the parties in this fund service urgently needs to be realized considering that the securities crowdfunding industry or securities offering through the Urun Dana service is a relatively new industry and has many risks. This is in line with the provisions of Article 66 of POJK No. 57/2020, which requires the organizer and users to mitigate risks. What is meant by risk mitigation is the mitigation of all risks contained in the Urun Dana service, including business risk, investment loss risk, risk of a lack of liquidity, risk of the scarcity of dividend distribution, and risk of the dilution of share ownership.8
In addition to the risks mentioned above, there are still legal risks that are potentially faced by the parties. In terms of service providers, Urun Dana has a very dominant role in the business process of Urun Dana services. The organizer is a provider of Urun Dana service platform funds that are used as a meeting place for publishers and financiers of electronic funds. In addition, the organizer is also a party who has the authority to conduct an assessment and review of the eligibility of prospective issuers. Considering this, service organizers should have the same guidelines for assessing and reviewing prospective publishers.
Guidelines on conducting assessments and the assessment of prospective publishers conducted by the organizer should also apply the precautionary principle. Financiers in the service of Urun Dana only contribute to the information provided by the publisher and published by the organizer through its platform. So, it can be said that the organizer is the party that provides all the information that is the main consideration for the financier to determine his investment decision. As such, the operator has a responsibility to provide and/or provide up-to-date information about Urun Dana services that is accurate, honest, clear, and not misleading.9
From the financier’s side, more risks are faced. Starting from the risk of investment losses, there is the risk of a lack of liquidity, the risk of the scarcity of dividend distribution, and the risk of the dilution of share ownership. These risks can be minimized if the organizer can apply the precautionary principle in conducting the assessment and review of prospective issuers to ensure that securities offered by the publisher through the subscription platform are of good quality and carry minimal risk when purchased by financiers.
In terms of the publisher, the most dominant risk is business risk. This happens considering that the issuer who will provide the securities offering through this Urun Dana service is a micro, small, and medium enterprise (MSME). MSMEs are still vulnerable to mitigating business risks, one of which maintains the company’s ongoing concerns. Limitations in terms of capital and management represent one factor, and innovation is usually a contributing factor.
It is important that security and protection guarantees to the parties in this service are strengthened. This is an effort to keep the fintech service industry sustainable and not detrimental to the parties. The regulator whose nature is OJK should take a role in creating guarantees, and protections for the parties can be accommodated by providing sufficient regulation to provide legal guarantees and protections for the parties as well as the enforcement of regulations by the Financial Services Authority.
Referring to the current regulations, namely POJK 57/2020, there are still some loopholes that should be perfected to create security guarantees and protection of the parties in the offering of securities through the Urun Dana service. Therefore, this paper wants to research “The Design of Equity Crowdfunding Arrangements That Guarantee Legal Certainty in The Digital age”.

2. Problem Formulation

Based on the background of the problems described above, it can be formulated as follows:
  • Has Indonesia’s equity crowdfunding arrangement provided a guarantee of legal certainty in the digital age?
  • How is the development of equity crowdfunding arrangements in some countries in the digital era?
  • How is the design of Indonesia’s equity crowdfunding arrangement that can provide guaranteed legal certainty in the digital era?

3. Library Review

Research on the topic of equity crowdfunding in Indonesia has been widely carried out. The following are some studies related to equity crowdfunding:
The first study, entitled “Urgency of Implementing Regulatory Sandbox by Financial Services Authority as An Effort to Protect Law for Equity Crowdfunding Financiers”, written by Na’im Fajarul Husna, Universitas Sebelas Maret, was published in Journal de Jure Volume 12 Number 1 in April 2020. This study discusses equity crowdfunding practices in Indonesia and compares regulatory sandboxing in other countries. The results of this study concluded that existing regulations have not accommodated legal protections for financiers and that potential losses can be incurred by organizers and issuers. Therefore, to prevent losses from being incurred, there must be a trial to ensure the readiness of the organizer. A regulatory sandbox can be a means to trial regulations for prospective equity crowdfunding companies. Later, it is expected that the trial period in the regulatory sandbox can be a benchmark of whether the company is viable and allowed to operate in equity crowdfunding. This needs to be carried out to provide legal protection for equity crowdfunding financiers.
The second study, entitled “problematical Legal Protection of The Parties in The Transaction of Urunan Dana Services Approved the Information-Technology-Based Stock Offering (Equity Based Crowdfunding)”, was written by Viodi Childnadi Widodo and Dona Budi Kharisma, Sebelas Maret University, published in the Journal of Private Law Volume VIII Number 2 in December 2020. This research aimed to find out the form of legal protection for the parties and the problems faced by the Financial Services Authority in providing legal protection efforts to the parties in equity crowdfunding services. The results of this study concluded that legal protection in equity crowdfunding activities has not been optimal, which is due to the problems faced by OJK in providing legal protection efforts to the parties in the form of (a) legal substance in the form of lack of detail based on the Capital Market Law, as further affirmed in the Financial Services Authority Act, which should be the reference of POJK Number 37/POJK.04/2018, which lacks detail and only includes sections on public offering and securities trading activities as stipulated in the Capital Markets Act; (b) the legal structure in the form of the organizer’s platform, which provides less clarity on risk mitigation if there is a risk that it harms the financier or issuer; and (c) a legal culture in the form of a society that is less concerned about the importance of information about the form of legal protection to users.
The third study, entitled “Legal Protection of Users of Urun Dana Services Through Information-Technology-Based Stock Offering”, written by Suriyadi, Alauddin State Islamic University, was published in The Journal of Panorama Law Volume 5 Number 2 in December 2020. This research discusses the extent to which POJK regulation No. 1/POJK.07/2013 on consumer protection of the financial services sector and POJK Number 37 of 2018 provides protection for parties in information-technology-based fund-based services. The results of this study concluded that, based on both OJK regulations mentioned, the responsibility for user losses (financiers) due to the error of directors, employees, and/or third parties working for the organizer is the responsibility of the organizer, even though the provisions of Article 1365 of the Civil Code regulate that the party who made the mistake must be responsible for the loss; as such, the OJK regulation should regulate more details regarding responsibility based on errors and whose actions result in losses, so ensure that it is not due to the actions of third parties who cooperate with the organizers and make mistakes and acts of violation that result in the loss of the financier of full responsibility to the organizer.
The research conducted by this author is different from research that has been carried out before. The difference lies in the previous studies that have been outlined above, still limited to looking at problems or legal problems related to the implementation of information-technology-based stock offerings conducted by the parties, who in this case are organizers, issuers, and financiers. The emerging regulations are associated with the extent to which applicable laws and regulations provide legal protection for the parties. In addition, the regulations used in previous legal research still use the basis of POJK No. 37 of 2018, which has now been revoked and declared invalid since the enactment of POJK No. 57 of 2020 junto POJK No. 16 of 2021. This research not only looks at problems in the equity crowdfunding industry but more deeply tries to provide a better design arrangement to provide certainty for the parties in information-technology-based fund-based services in Indonesia.

6. Regulation and the Internet

Economic globalization has encouraged the globalization of law. This phenomenon is accelerated when economic and legal globalization is facilitated using information technology, especially the Internet. The use of Internet technology is associated with patterns in the interaction between people, both individually, organizationally, and in government, which have given birth to new phenomena and characteristics in the field of law.10
New phenomena and characteristics in the field of law not only concern the legal relationships carried out between humans no longer being face to face but also the space and time no longer existing between territorial boundaries, where the legal relationship can be performed by anyone and at any time by crossing the borders of the country (extraterritorial). The presence of phenomena and legal characteristics as above has given birth to a new challenge. Nicola Lucchi stated that the information technology revolution and digitalization of contacts have resulted in many new possibilities and challenges (Lucchi n.d.).
The Internet is a global multi-communication space wherein information and communication technologies converge and regulations are multi-layered. The basic unit of Internet regulation is the code, programming software, or logic that makes the Internet function. In his highly acclaimed book Code and Other Laws of Cyberspace, Lawrence Lessig (1999) conceptualized Internet regulation as a space dominated by corporate commercial technology and the underlying logic of computer code, operating within the framework of the rule of law. Indeed, by creating protocols such as those designed to protect children from harmful content on the Internet and by setting standards for anything from HTML to peer-to-peer music exchanges, the Internet community clearly regulates the Internet (Eko 2013).
In addition, through code, information and communication technology is used to regulate the behaviour of Internet users on a global scale, in accordance with the values, ideals, and ethics of hardware, controllers, and designers of hardware and software. In addition, regulators around the world use architectural, software, and hardware solutions to address cybercrime, network security, reliability, privacy, and intellectual property issues.
In line with the use of code to regulate the behaviour of Internet users, the ethical aspect of netiquette becomes another means that can control the utilization of the Internet that is not in harmony with the ethics of Internet users themselves.
Pręgowski stated that netiquette is an obligation that is present by users acting when connected to the Internet. Just like the rules of ethics in the real world, netiquette also encourages users to adhere to ethical and moral rules—often unwritten—to create a comfortable, peaceful, and peaceful common space (Fahrimal 2018).
The market aspect is the next instrument in controlling the utilization of the Internet from all forms of abuse that can harm its users. The role of the market in controlling the utilization of the Internet is realized in the form of a market review of a digital service. With this digital service review, it has had an impact on the behaviour of service providers to always provide optimal services to Internet users.
The use of the Internet that can be controlled strongly; in fact, it is still very dependent on regulations made and strengthened by the government. Since the Internet became a global multi-communication medium in the 1990s, countries around the world have enacted laws aimed at regulating segments of the Internet within their jurisdictions or at least brought parts of that network into the scope of their systems and legal jurisdictions. The result is a set of Internet regulatory models at the international and national level that govern everything from Internet infrastructure to social networking sites such as Facebook, Myspace, and Twitter network organizations through communication technology; P2P network (Eko 2013).
In its development, this regulation was not only born by the government but also developed by Internet users through self-regulation. Self-regulation is a set of provisions made by the parties themselves to regulate the utilization of the Internet. The real form of self-regulation can be a term and condition compiled by one party then agreed upon by the other party.

7. Method

Research is normative legal research that examines the law related to equity crowdfunding as a rule (Abdurrahman 2009).11 In addition, this type of legal research is carried out by researching secondary data using deductive thinking methods. The approach used in this research uses a statutory approach, conceptual approach, and comparative approach. Analysis of data in this study by means of qualitative descriptive analysis is carried out by collecting legal material related to the problem and then ensuring sentences are clear, orderly, logical, and effective so that a clear picture is obtained precisely and conclusions can be drawn (Asikin 2006). This study includes data classification activities, editing, the presentation of analytical results in the form of narratives, and decision-making.

9. The Development of Equity Crowdfunding Arrangements

Funding sources through equity crowdfunding (ECF) are seen as one of the alternatives for micro, small, and medium enterprises to be able to access the source of funding they need. The state must be present in this regard to facilitate the strengthening of activities of MSMEs, considering that micro, small, and medium enterprises are the backbone of economic activity in a country, but they face severe funding constraints in traditional loans and capital markets.
Several countries have responded to the development of ECF by issuing various accommodative and fair regulations to ensure certainty and legal protection for business actors. Generally, each country issues ECF regulations by accommodating the use of digital platforms.
  • The main content of ECF regulation in the UK is to limit the types of investors that companies can send direct offer promotions to unregistered equities or debt securities. Investors who are allowed to participate in public offerings through equity funding in the UK are professional clients; retail clients who confirm that, in connection with the investment being promoted, they will receive regulated investment advice or investment management services from an authorized person; retail clients who are venture capital contacts or corporate financial contacts; retail clients who are certified or self-certified as sophisticated investors; retail clients who are certified as high net worth investors; and retail clients who clarify that they will not invest more than 10% of net financial assets that can be invested in unregistered equity and debt securities.
    The ECF regulatory framework in the UK is one of the largest financial supervision regulations in the world and the most complex given the scope of its arrangements relating to the integrated financial system including developed securities markets. Even the IMF has noted the importance of the UK equity market as a platform for trading foreign stocks, particularly European stocks.
    There are two forms of crowdfunding set up in the UK: first, a loan-based crowdfunding platform where investors can lend money to the issuer in the hope of a financial return in the form of interest payments and capital repayment over time; second, an investment-based crowdfunding platform where investors can invest in unregistered shares or debt securities from the issuer. ECF falls into the category of investment-based crowdfunding in the UK. Both forms of crowdfunding were previously subject to general regulations regarding the lending and issuance of securities. In its development, the British government created a special regulatory regime for crowdfunding. The ECF regulatory framework in the UK is media neutral, meaning it applies to all intermediary marketing offerings for “unreelable securities” (securities not listed on the legal stock market and no secondary market) using either online portals or offline mechanisms. This regulation applies to any ECF platform operator offering services to invest in new and established businesses by buying shares (and debt).
    The UK ECF regime effectively limits its arrangements to public companies because the rules make no exception to the ban on public offerings of shares by private companies. For a company to be classified as public, it must qualify that it does not have a face value of allocated share capital below GBP 50,000. If a public company wants to issue shares through the ECF platform, it must comply with many of the rules that apply equally to ECF platform operators. Companies issue shares through the ECF platform deal with investments. ECF issuers are not limited to the amount they can collect through the ECF process.
  • ECF arrangements in Australia are subject to Australian Securities and Investments Commission oversight. ECF platform operators in Australia are referred to as CSF intermediaries. They are considered financial service licensees (and in some cases Australian Market License holders—although holding an Australian Market License will not remove the need to hold a financial services license when providing crowdfunding services) whose license expressly authorizes the licensee to operate the ECF platform. Therefore, the provision of crowdfunding services is the provision of financial services, which requires a financial services operational permit called the Australian Financial Services License (AFSL).
    ECF platform operators have a number of obligations including not publishing the offer documents presented by the issuer; the provision of risk warnings on ECF platforms in accordance with regulations; offering mechanisms that allow investors to buy shares but only after they complete recognition; offering communication facilities so that people accessing the offer documents through the platform can make posts related to the offer, view other people’s posts, and ask questions to ECF platform publishers and operators; and ensuring that the direct or indirect costs and interests of ECF platform operators are clearly displayed on the platform.
    ECF Regulation Australia covers two broad areas of regulation for issuers: (1) eligibility requirements for determining who can issue shares through the ECF regime, and (2) disclosure of information to issuers raising funds through the ECF regime.
    Regulations regarding operators and issuers of ECF platforms are published to protect investors. One of them is by setting an upper limit on the amount that can be invested by a particular investor.
  • The United States enacts the JOBS Act as the basis of ECF regulation by excluding control over public offerings under the Securities Act. More specifically, the rules waive the obligation to submit a registration statement when fulfilling the four elements, namely (1) the offer limit for the issuer, (2) the investment limit for investors, (3) the requirements for the broker or funding portal, and (4) the requirements for the issuer (De Moor and Kim 2016).
    ECF platform operators must be registered with the Securities and Exchange Commission (SEC) either as broker-dealers or as “funding portals”. Funding portals are less strictly regulated than broker-dealers, but they cannot offer investment advice or recommendations; solicit purchases, sales, or offers to purchase securities offered on their ECF platform; compensate employees, agents, or others for solicitation; or withhold, manage, own, or handle investor funds or securities. If prospective ECF platform operators want to engage in any of these activities, then they need to register as broker-dealers (De Moor and Kim 2016, p. 4).
    The United States also regulates the activities of issuers. First, there is a limit on the types of companies that can issue shares through ECF. Issuers must be private companies and based in the United States. Issuers eligible to use ECF can raise a maximum aggregate amount of USD 1 million within a 12-month period. This amount is adjusted for inflation at least once every 5 years. In addition to these financial constraints, the issuer must fulfill several obligations. For example, once an issuer collects funds through the ECF, they must submit bid information to the SEC, and they may have to file an annual report with the SEC. Issuers must electronically submit their offer statement on Form C through the SEC’s Electronic Data Collection, Analysis, and Retrieval (EDGAR) system and with the relevant ECF platform operator (De Moor and Kim 2016, p. 5).
  • Malaysia enforces comprehensive ECF regulations as the basis for equity regulation. The regulation aims to facilitate the development of crowdfunding potential to facilitate innovation, productivity, and growth by encouraging the creative potential of SMEs; and the potential for increased competition among capital suppliers that can lower capital costs for all issuers. To that end, the Malaysian government issued Guidelines on Recognized Markets as the basis of implementing regulations to establish the operation of the ECF. There are at least 25 ECF issuers, with a total of RM14 million collected by these issuers. ECF issuer industries that have successfully operated in Malaysia include industries in the education, retail, digital human resources, and e-commerce sectors (ASEAN 2017, pp. 37–38).
    At its broadest level, the ECF market guidelines set out two requirements for ECF platform operators. The first relates to the registration of ECF platform operators, and the second relates to their ongoing regulations once registered. Guidelines establishing requirements regarding the registration of market operators which include orderly, fair, and transparent operation of the market through its electronic facilities; responsibility for proper operation; management of risks associated with the business and its operations; market rules that provide investor protection and the public interest; assurance of the proper functioning of the market; the promotion of fairness and transparency; management of any conflicts of interest that may arise; the promotion of fair treatment of its users or anyone who subscribes to its services; the promotion of the fair treatment of any person hosted, or applicable to on its hosting, on its platform; assurance of proper arrangement and supervision of its users, or any persons using or accessing its platform, including the suspension and expulsion of such persons; and the provision of legal appeals (ASEAN 2017, pp. 39–40).
    Each ECF platform operator must comply with the obligation (a) to conduct due diligence on prospective issuers who plan to use its platform. Due diligence includes background checks on issuers to ensure they, the board of directors, senior management, and controlling owners are in good health and proper, and verifying the issuer’s proposed business; (b) monitoring and ensuring compliance with its rules; (c) implementing investor education programs; (d) ensuring that issuer disclosure documents submitted to ECF operators are verified for accuracy and accessible to investors through the platform; (e) notification of investors of any adverse material changes to the issuer’s proposal; (f) assurance that the fundraising limits imposed on the issuer are not breached; (g) assurance that investment restrictions imposed on investors are not breached; (h) obtainment and storage of self-declared risk recognition forms from investors before they invest in the ECF platform; and (i) the possession of a flow monitoring process mechanism to monitor anti-money laundering requirements.
    In addition, the guidelines also govern that information disclosed by prospective issuers must be accurate and must not contain untrue or misleading statements. If the operator of the ECF platform discloses information containing false or misleading statements, it may incur a fine or imprisonment for a period of no more than 10 years, or both.
    Finally, the guidelines set rules regarding the handling of trust funds by ECF platform operators. ECF platform operators must create and maintain one or more underwriting accounts at ECF’s licensed hosting agency where funds are collected by the issuer. This underwriting money can only be issued by the ECF platform operator to the issuer after a predetermined amount has been reached.
    ECF Malaysia regulations also set limits on the types of companies as issuers that can raise funds by issuing common shares (common shares and preferred shares) through the ECF and how they can use the system. ECF in Malaysia is restricted to private limited liability companies incorporated in Malaysia. Companies wishing to use ECF can have more than 50 non-employee shareholders by using a nominee structure for shareholders. Issuers must also comply with several requirements regarding the disclosure of information. Before issuers can be hosted on the ECF platform, they must provide the following information to the ECF platform operator (at a minimum) including information that explains the company’s key characteristics; information that describes the purpose of the fundraiser and the amount the publisher wants to collect; information relating to the company’s business plan; and financial information related to the company. If the publisher advertises an offer, the ad may not contain suggestions that may trigger a requirement to obtain a Capital Market Service License. This license is required in Malaysia to provide services regarding, among other things, securities transactions, investment advice, and financial planning.
    The many regulations for ECF platform operators and issuers issued by the Malaysian government are efforts aimed at protecting investors. For example, requirements regarding disclosure and conflicts of interest are imposed on operators and issuers of ECF platforms for the benefit of investors.
  • Thailand also regulates the ECF, which includes requirements for the registration of the ECF platform and the continued implementation of the ECF platform. Regarding the list requirements, prospective ECF platform operators must apply to Thailand’s financial services authority and pay the relevant application fee. Prospective platform operators must be established under Thai law, have registered capital of no less than THB 5 million, have no financial difficulties or other deficiencies that would make them unsuitable as ECF platform operators, have organs consisting of directors and administrators who are not prohibited from participating in capital market business activities, and have the capacity and capability to implement the system necessary to operate the platform according to certain requirements set out in ECF regulations (ASEAN 2017, pp. 45–46).
    The ECF rule regime in Thailand places legal responsibility on ECF platform operators to ensure investor protection. Therefore, ECF platform operators must act honestly, have due diligence, and have no conflicts of interest when carrying out their functions in accordance with ECF regulations.
    The ECF arrangement in Thailand classifies the types of issuers into two types of corporate companies: public limited liability companies and limited liability companies. A public limited liability company may offer shares for sale to the public or to anyone if the offer is made in accordance with relevant laws regarding securities and stock exchanges. A limited liability company is a closed company that is prohibited from ordering shares to the public. Both types of companies are allowed to issue shares through ECF if the company is established under Thai law, have a business plan and intend to conduct business with funds raised through the ECF platform, and never issue shares through private placements or public offerings. It is not allowed to list its shares on the Thai Stock Exchange.
    Thailand’s ECF regulations expressly seek to protect investors, including restrictions on the amount that can be invested depending on the investor category, requirements regarding self-accreditation, and educational requirements. There are two categories of investors recognized in Thailand’s ECF regulations: retail investors and non-retail investors, including: (1) institutional investors, (2) private equity trusts, (3) venture capital businesses, and (4) qualified investors.

11. Conclusions

Equity crowdfunding (ECF) arrangements in Indonesia have undergone two changes since first being promulgated in Financial Services Authority (POJK) Regulation No. 37/2018. POJK No. 57/2020 Junto POJK No. 16/2021 is the only legal umbrella that regulates the existence of the ECF service industry in Indonesia today. In substance, the arrangement regarding ECF services should provide legal protection and certainty for the parties in ECF, namely organizers, issuers, and financiers. However, the current POJK is still not enough to provide protection and legal certainty, especially to financiers of ECF services. This happens because, in terms of regulatory substance, it is not sufficient because it is only regulated in OJK regulations and, in terms of regulatory enforcement and supervision, by regulators who are still weak. Of the three parties in the service of ECF, financiers are the most vulnerable to risks in the service industry. Regulators should be involving financiers in policy making and the regulation of funds so that regulations can be created that can provide legal certainty for all parties in the service of ECF in Indonesia.
Many countries are developing equity crowdfunding regulatory frameworks oriented towards investor protection. Regulations developed in the digital age place more emphasis on controlling ECF platform operators who must comply with a number of licensing or registration requirements and ensure they are suitable to provide services and must comply with a number of ongoing obligations for the platform to operate in an appropriate manner. In addition, the development of this regulation also emphasizes the compliance of issuers in terms of the disclosure of information. In addition, protection for investors is ensured by containing regulations that limit the amount that can be invested and ensure that investors have the necessary information.
The design of equity crowdfunding arrangements that provide guarantees of legal certainty to the parties can be made in the form of co-regulation arrangements. Co-regulation design is a regulatory approach that emphasizes the sharing of responsibilities between countries and non-state actors such as broad-based private-sector stakeholders in policy making and implementation. It focuses on collaboration in the creation, adoption, enforcement, and evolution of policies and regulations. It is helpful to regulate the digital economy because it can provide countries with the necessary data and knowledge, mechanisms for dialogue, and flexible adaptation of legislative solutions in a new and rapidly changing digital economy and facilitate implementing regulations.

Author Contributions

Formal analysis, L.S.W.; writing—original draft, B.A.R.; writing—review and editing, A.A. All authors have read and agreed to the published version of the manuscript.

Funding

This research received Faculty of Law, Universitas Islam Indonesia funding.

Institutional Review Board Statement

Not applicable.

Data Availability Statement

Not applicable.

Conflicts of Interest

The author declares no conflict of interest.
1
https://republika.co.id/berita/q9bi9n370/dua-fintech-Urun-dana-ini-kerja-sama-dengan-ksei, accessed on 19 June 2020.
2
Article 1 number (5) of POJK No. 57/POJK.04/2020 on Securities Offerings through Information-Technology-Based Fund Urun Service, 2020.
3
https://duniafintech.com/santara/, accessed on 27 June 2020.
4
https://santara.co.id, accessed on 1 June 2020.
5
https://bisnis.tempo.co/read/1336881/jokowi-minta-23-juta-umkm-diberi-bantuan-pembiayaan-modal-kerja/full&view=ok, accessed on 18 June 2020.
6
Article 1 number 6 of Financial Services Authority Regulation No. 57/POJK.04/2020 on Securities Offerings Through Information-Technology-Based Fund Urun Services, 2020; Article 1 number 7 of Financial Services Authority Regulation No. 57/POJK.04/2020 on Securities Offerings Through Information-Technology-Based Fund Urun Services, 2020.
7
Article 1 number 8 of Financial Services Authority Regulation No. 57/POJK.04/2020 on Securities Offerings Through Information-Technology-Based Fund Urun Services, 2020.
8
Explanation of Article 66 of Financial Services Authority Regulation No. 57/POJK.04/2020 on Securities Offerings Through Information-Technology-Based Fund Urun Services, 2020.
9
Article 73 POJK No. 57/POJK.04/2020 on Securities Offerings through Information-Technology-Based Fund Urun Service, 2020.
10
Jones (2000): The Internet can be defined as a network of interconnecting networks—local, regional and global connected by the user via telephone or satellite connection. Its development was started in the early 1960s by a young group working at the Advance Research Project Agency (ARPA). The development was originally carried out as an experiment of the United States military’s defense computer network known as ARPAnet. In the 1980s it was developed by a U.S. National Science Foundation for local and regional defense purposes. In the 1990s, it began to expand widely into the human life sector. See also Segura-Serrano (2006). In this context, there are two opposing groups on the importance of the law regulating problems on the Internet. The first group is supported by libertarians, where they assume that the Internet is lawless and should not be governed by law; the second group is supported by traditionalists who consider that the state is the most viable political and legal institution to regulate the Internet. In addition to these two groups, there is a third group that combines the two groups. This group is called mixed regulation and governance and wants efforts to combine national laws and regulations that apply in the community.
11
According to Abdurrahman (2009), normative legal research is a research that conceptualizes the law as what is written in the law in books or law as a rule or norm as a benchmark of human behaviour that is considered appropriate.
12
https://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.html, accessed on 15 November 2021.
13
BOY No. 37/2018 dan BOY No. 57/2020, n.d., n. Urun Dana service is a term used in Indonesia to refer to Crowdfunding. The term ‘Urun Dana service’ is used in POJK No. 37/2018 and POJK No. 57/2020. In POJK No. 37/2018 known as stock offering through Urun Dana service while in POJK No. 57/2020 used the term securities offering through the Urun Dana service.
14
General Explanation of Financial Services Authority Regulation No. 57 of 2020 on Securities Offerings through Information-Technology-Based Fund Urun Services, 2020.
15
Article 1 paragraph 2 POJK No. 57/2020, n.a.
16
General Explanation of Financial Services Authority Regulation No. 16/POJK.04/2021 on Changes to Financial Services Authority Regulation No. 57/POJK.04.2021 on Securities Offerings Through Information-Technology-Based Fund Urun Services, 2021.
17
Article 1 number 6 POJK No. 37 /POJK.04/2018 on Urun Dana Services Through Information Technology-Based Stock Offering (Equity Crowdfunding), n.a.
18
Article 6 POJK No. 37 /POJK.04/2018 on Urun Dana Services Through Information Technology-Based Stock Offering (Equity Crowdfunding), n.a.
19
https://investor.id/market-and-corporate/267572/equity-crowdfunding-himpun-dana-rp-365-miliar, accessed on 6 October 2021.
20
https://finansial.bisnis.com/read/20211018/563/1455624/potensi-belum-tergarap-optimal-pemain-fintech-Urun-dana-bakal-makin-ramai, accessed on 26 October 2021.
21
Article 10 POJK No. 37 /POJK.04/2018 on Urun Dana Services Through Information-Technology-Based Stock Offering (Equity Crowdfunding), 2018.
22
Article 11 POJK No. 37 /POJK.04/2018 on Urun Dana Services Through Information-Technology-Based Stock Offering (Equity Crowdfunding), 2018.
23
Article 12 POJK No. 37 /POJK.04/2018 on Urun Dana Services Through Information-Technology-Based Stock Offering (Equity Crowdfunding), 2018.
24
Article 7 POJK No. 37 /POJK.04/2018 on Urun Dana Services Through Information-Technology-Based Stock Offering (Equity Crowdfunding), 2018.
25
https://finansial.bisnis.com/read/20211018/563/1455624/potensi-belum-tergarap-optimal-pemain-fintech-Urun-dana-bakal-makin-ramai, accessed on 23 December 2020.
26
https://finansial.bisnis.com/read/20201215/563/1331110/resmi-fintech-Urun-dana-atau-equity-crowdfunding-kini-punya-asosiasi, accessed on 25 December 2020.
27
Article 1 number 7 POJK No. 37 /POJK.04/2018 on Urun Dana Services Through Information-Technology-Based Stock Offering (Equity Crowdfunding), 2018.
28
https://investor.id/market-and-corporate/267572/equity-crowdfunding-himpun-dana-rp-365-miliar, accessed on 26 October 2021.
29
Article 16 paragraph (1) letter i POJK No. 57/2020, n.a.
30
Provisions of Chapter III, Objectives, Functions, Duties, and Authority of Law No. 21 of 2011 concerning Financial Services Authority, 2011.

References

  1. Primary Sources

    https://bizhare.id/, accessed on 1 June 2020.
    Undang-undang Nomor 21 Tahun 2011 tentang Otoritas Jasa Keuangan (Law Number 21 Year 2011 On Financial Services Authority).
    (POJK.04/2021) Peraturan Otoritas Jasa Keuangan (POJK) No. 16/POJK.04/2021 tentang Perubahan Atas Peraturan Otoritas Jasa Keuangan (POJK) Nomor 57/POJK.04.2020 tentang Penawaran Efek Melalui Layanan Urun Dana Berbasis Teknologi Informasi (Regulation of Financial Services Authority Number 16/POJK.04/2021 Concerning Amendment to Financial Services Authority Regulation (POJK) Number 57/POJK.04.2021 Concerning Securities Offering Through Information Technology-Based Crowdfunding Services)
    (POJK.04/2020) Peraturan Otoritas Jasa Keuangan (POJK) No. 57/POJK.04/2020 tentang Penawaran Efek melalui Layanan Urun Dana Berbasis Teknologi Informasi. (Regulation of Financial Services Authority Number 57/POJK.04/2020 Concerning Securities Offering through Information Technology-Based Crowdfunding Services)
    (POJK.04/2018) Peraturan Otoritas Jasa Keuangan (POJK) No. 37/POJK.04/2018 tentang Layanan Urun Dana Melalui Penawaran Saham Berbasis Teknologi Informasi (Regulation of Financial Services Authority Number 37/POJK.04/2018 Concerning Crowdfunding Service through Information Technology-Based Share Offering)

  2. Second Sources

  3. Abdurrahman, Muslan. 2009. Sosiologi dan Metode Penelitian Hukum. Malang: UMM Press. [Google Scholar]
  4. Agustina, Lidya, Yan Andriariza Ambhita Sukma, D. Mahmudah, A. B. Setiawan, R. Mustika, A. Dunan, and A. Ratnawati. 2019. Perkembangan Ekonomi Digital di Indonesia Strategi dan Sektor Potensial. Jakarta: Puslitbang Aptika dan IKP. [Google Scholar]
  5. Ahlers, Gerrit, Douglas Cumming, Christina Günther, and Denis Schweizer. 2013. Signaling in Equity Crowdfunding. Chicago: Northwestern Law. [Google Scholar]
  6. Al-Fatih, Sholahuddin, and Zaka Aditya. 2019. Hoax and The Principle of Legal Certainty in Indonesian Legal System. Paper presented at the 1st International Conference on Business, Law and Pedagogy, Sidoarjo, Indonesia, February 13–15. [Google Scholar]
  7. ASEAN. 2017. Facilitating Equity Crowdfunding in the ASEAN Region. Jakarta: ASEAN Secretariat. [Google Scholar]
  8. Asikin, Amiruddin dan Zainal. 2006. Pengantar Metode Penelitian Hukum. Jakarta: PT. Raja Grafindo Persada. [Google Scholar]
  9. Cicchiello, Antonella Francesca, and Daniele Leone. 2020. Encouraging investment in SMEs through equity-based crowdfunding. International Journal of Globalisation and Small Business 11: 258–78. [Google Scholar] [CrossRef]
  10. Cicchiello, Antonella Francesca, Maria Cristina Pietronudo, Daniele Leone, and Andrea Caporuscio. 2020. Entrepreneurial dynamics and investor-oriented approaches for regulating the equity-based crowdfunding. Journal of Entrepreneurship and Public Policy 10: 235–60. [Google Scholar] [CrossRef]
  11. De Moor, Lieven, and Hyonsu Kim. 2016. A Comparative Study on the Regulatory Framework of Crowdfunding. The Journal of Small Business Innovation 19: 1–16. [Google Scholar]
  12. Dresner, Steven. 2014. Crowdfunding: A Guide to Raising Capital on the Internet. Hoboken: John Wiley & Sons, Limited, p. 3. Available online: https://onlinelibrary.wiley.com/doi/book/10.1002/9781118746974 (accessed on 23 December 2021).
  13. Eko, Lyombe. 2013. Internet Law and Regulation. In The International Encyclopedia of Communication. Edited by Wolfgang Donsbach. Africa: Blackwell Publishing. [Google Scholar]
  14. Fahrimal, Yuhdi. 2018. Netiquette: Etika Jejaring Sosial Generasi Milenial dalam Media Sosial Netiquette: The Ethics of Millenial-Generation Social Networks in Social Media. Jurnal Penelitian Pers dan Komunikasi Pembangunan 22: 61. [Google Scholar] [CrossRef]
  15. Financial Conduct Authority Policy Statement. n.d. The FCA’s regulatory Approach to Crowdfunding Over the Internet, and the Promotion of Non-Readily Realisable Securities by Other Media. Available online: https://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.html (accessed on 15 November 2021).
  16. Gabison, Garry A. 2015. Understanding Crowdfunding and Its Regulations, How Can Crowdfunding Help ICT Innovation. European Commission Joint Research Centre Science and Policy Report. Luxembourg: Publications Office of the European Union. [Google Scholar]
  17. Gibbons, Llewellyn Joseph. 1997. No Regulation, Government Regulation, or Self- Regulation: Social Enforcement or Social Contracting for Governance in Cyberspace. Cornell Journal of Law and Public Policy 6: 483. [Google Scholar]
  18. Gray, Christoper Berry, ed. 1999. The Philosophy of Law an Encyclopedia. New York and London: Garland Publishing. [Google Scholar]
  19. Hartanto, Ratna. 2020. Hubungan Hukum Para Pihak Dalam Layanan Urun Dana Melalui Penawaran Saham Berbasis Teknologi Informasi. Jurnal Hukum Ius Quia Iustum FH UII 27: 157. [Google Scholar] [CrossRef]
  20. Hemer, Joachim. 2011. A Snapshot on Crowdfunding. Karlsruhe: Franhoufer ISI. [Google Scholar]
  21. Hossain, Mokter, and Gospel Onyema Oparaocha. 2017. Crowdfunding: Motives, Definition, Typology and Ethical Challenges. Entrepreneurship Research Journal 7: 14. [Google Scholar] [CrossRef]
  22. International Organization of Securities Commissions. 2017. IOSCO Research Report On Financial Technologies (Fintech). Available online: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD554.pdf (accessed on 6 August 2021).
  23. Ishak, Ajub. 2013. Ciri-ciri Pendekatan Sosiologi dan Sejarah dalam Mengkaji Hukum Islam. Al Mizan 9: 72. [Google Scholar]
  24. Jones, Lucinda. 2000. An Artist’s Entry Into Cyberspace: Intellectual Property on the Internet. European Intellectual Property Review 22: 79–92. [Google Scholar]
  25. Josua, Gustaf, Moch Zairul Alam, and Ranitya Ganindha. 2019. Tinjauan Yuridis Terhadap Penerapan Prinsip Keterbukaan Dan Mitigasi Resiko Pada Equity Crowdfunding Di Indonesia. Malang: Jurnal Hukum Fakultas Hukum Universitas Brawijaya. [Google Scholar]
  26. Lucchi, Nicola. n.d. Intellectual Property Rights in Digital Media: A comparative Analysis of Legal Protection, Technological Measures, and New Business Models under EU and U.S. Law. Buffalo Law Review 53: 118. [CrossRef]
  27. Martin, Michael. 1965. Roscoe Pound’s Philosophy of Law. ARSP: Archiv Für Rechts- Und Sozialphilosophie/Archives for Philosophy of Law and Social Philosophy 51: 37–55. [Google Scholar]
  28. Müllerleile, Thomas, Dieter William Joenssen, and Andreas Müllerleile. 2014. Crisis, Co-Financing and Crowdfunding: Igniting Regional Development. Paper presented at the International Conference for Entrepreneurship, Innovation and Regional Development ICEIRD, Nicosia, Cyprus, June 5–6. [Google Scholar]
  29. Paunio, Elina. 2009. Beyond Predictability—Reflections on Legal Certainty and The Discourse Theory of Law in the EU Legal Order. German Law Journal 10: 1469–93. [Google Scholar] [CrossRef]
  30. Report of the SRO Consultative Committee of the International Organization of Securities Commissions. 2000. Model for Effective Regulation. Available online: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD110.pdf (accessed on 26 December 2021).
  31. Rosana, Ellya. 2013. Hukum dan Perkembangan Masyarakat. Jurnal TAPIs 9: 109. [Google Scholar]
  32. Segura-Serrano, Antonio. 2006. Internet Regulation and the Role of International Law. Max Planck Yearbook of United Nation Law 10: 193–201. [Google Scholar] [CrossRef]
  33. Shaham, Ron. 1995. Custom, Islamic Law, and Statutory Legislation: Marriage Registration and Minimum Age at Marriage in the Egyptian Shari’a Courts. Islamic Law and Society 2: 258. [Google Scholar] [CrossRef]
  34. Soekanto, Soerjono. 2013. Pokok-Pokok Sosiologi Hukum. Jakarta: RajaGrafindo Persada. [Google Scholar]
  35. ter Borg, S. J. A., and W. S. R. Stoter. 2010. The Rule of Law in Comparative Perspective. IUS Gentium 3: 4. [Google Scholar]
  36. Wade, Henry William Rawson. 1941. The Concept of Legal Certainty a Preliminary Skirmish. The Modern Law Review 4: 185. [Google Scholar] [CrossRef]
Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.

Article Metrics

Citations

Article Access Statistics

Journal Statistics
Multiple requests from the same IP address are counted as one view.
Download PDF
Pediatric Perspectives and Tools for Attorneys Representing Immigrant Children: Conducting Trauma-Informed Interviews of Children from Mexico and Central America
Previous
Claiming Justice: An Analysis of Child Sexual Abuse Complainants’ Justice Goals Reported during Investigative Interviews
Next