Frequently Asked Questions On The Peer-To-Peer Financing (P2P) Framework

A. General

How is SC regulating P2P in Malaysia?
As part of SC’s effort to nurture and facilitate market-based innovation in FinTech under the aFINity@SC initiative, the regulatory framework for equity crowdfunding (ECF) was introduced in February 2015.Continuing on the initiatives, SC has introduced the regulatory framework for P2P, setting out requirements for the registration and obligations of a P2P operator as provided in the revised Guidelines on Recognized Markets (the Guidelines) in May 2016.

The introduction of the new Chapter 13 in the Guidelines also provides for the type of issuer and investor who can participate in P2P.

The P2P framework will enable eligible businesses and companies to access market-based financing to fund their projects or businesses via an electronic platform.
How does P2P work?
P2P operator facilitates businesses or companies to raise funds from both retail and sophisticated investors through an online platform. Considering that the primary objective of introducing market-based financing is to help build small businesses which in turn help to spur and promote growth of the economy, hence the P2P operator is not permitted to facilitate individuals seeking personal financing.Through the SC registered P2P platform, an investor may invest in an investment note or an Islamic investment note issued by businesses or companies for a specified tenure with the expectation of a predetermined financial return.
How does an investor invest through P2P?
The process for investing through a P2P platform may differ from operator to operator depending on the rules set by the operators.In general, upon understanding and analysing the information disclosed by issuers concerning its business, financing purpose and financial information; credit assessment; repayment schedule and risk information published on the P2P platform, an investor will then make an informed decision on the issuers and amount they wish to invest in.

For example, Issuer X issues an investment note which seeks to raise RM100,000. The investment note is rated “A” with a rate of return 0.5 per cent per month for a 12-month period.

Therefore, the investor that chooses to invest in Issuer X in such amount he so decides, he will receive monthly repayments (principal and returns) for the duration of the investment note.
How does an issuer raise funds through P2P?
When an issuer applies for funding, the P2P operator will evaluate the issuer’s suitability, among others, by assessing its capacity to repay through credit history checks and analysis of any alternative data. These factors allow the P2P operator to assess and assign a risk score to the investment note or Islamic investment note issued by such issuer. Such issuance will then be hosted on the P2P platform where investors will then select and invest accordingly.

B. Application

Has the P2P framework been implemented?
The new P2P framework came into effect on 2 May 2016 in which application to be registered as a P2P operator was opened till 1 July 2016.
Will SC accept any application submitted after 1 July 2016?
At this juncture, the application closing date remained on 1 July 2016, however, any opening to the registration process will be subject to our regulatory review from time to time. Relevant communication will be made on any future opening of application.
Do applicants need to pay any fees when submitting an application to SC to be registered as a Recognised Market Operator?
When applying to SC to be registered as a Recognised Market Operator, the applicant has to attach a payment of RM5,000 together with its application.

C. P2P Operators

Who can operate a P2P platform?
A P2P operator must be a body corporate incorporated under the Companies Act 1965 with a minimum paid-up capital of RM5 million.A prospective P2P operator must be able to demonstrate to SC that it is able to satisfy the relevant criteria as mentioned in the Guidelines. Among others, the SC must be satisfied that the operator’s directors are fit and proper; it is able to operate an orderly, fair and transparent market having the requisite IT infrastructure and ensure that there is an efficient and transparent risk scoring system in place.

Further, it must also demonstrate that it is able to manage risks associated with its business and operation including having processes and contingency arrangement in the event it is unable to carry out its operations.
What are the obligations of a P2P operator?
Among others, a P2P operator must be able to determine the suitability of issuers to be hosted on the platform. This includes conducting background checks on the prospective issuers to ensure its fit and properness, verify its business proposition and carry out assessment on its creditworthiness.A P2P operator must also ensure compliance of its platform rules which are approved by SC and make available all the relevant information to the investor.

In addition, a P2P operator must ensure that monies obtained from investors and issuers are placed in a third party trust account until the appropriate disbursements are required to be made. A P2P operator must also have in place processes to manage any default by issuers including using its best endeavours to recover amount outstanding to investors.
Are there any additional obligations imposed for the offering of Islamic investment notes on a P2P platform?
Yes. A P2P operator must also comply with Chapter 11 as well as paragraph 13.11 of the Guidelines for the offering of Islamic investment notes on its platform.

D. Issuers

Who are the eligible issuers?
Only locally registered sole proprietorships, partnerships, incorporated limited liability partnerships, private limited and unlisted public companies, are allowed to be hosted on a P2P platform.
How much can an issuer raise on P2P platform?
There is no limit imposed by the SC on the amount of funds that may be raised by an issuer on a P2P platform. However, the amount of funds that may be raised on the P2P platform or the rate of financing will depend on the outcome of the issuer’s risk scoring conducted by the P2P operator.
Is an issuer allowed to keep the funds raised on P2P platform if it is less than the target amount?
An issuer is allowed to keep the funds raised on a P2P platform provided that he has at least raised 80 per cent of the target amount.

Example: Issuer X sought to raise RM100,000 on a P2P platform, but received offers amounting to RM80,000. Issuer X is allowed to retain the RM80,000 as it meets the 80 per cent minimum threshold.
Is an issuer allowed to keep the funds raised on P2P platform if it exceeds the target amount?
An issuer is not allowed to keep any amount which exceeds the target amount.

Example:Issuer X sought to raise RM100,000 but received offers totalling RM110,000. He can only retain up to RM100,000. The P2P operator will return the monies or reject the additional offers, as the case may be, in excess of the target amount, in accordance with its rules.
Can an issuer be hosted concurrently on multiple P2P platforms?
An issuer can only be hosted concurrently for different purposes on multiple P2P platforms. However, the issuer is required to disclose to the P2P operator its intention to seek funding from other P2P operators concurrently.

E. Investors

Who can invest in an investment note or Islamic investment note which is executed or offered on or through a P2P platform?
P2P investment opportunities are open to all investors. Retail investors are encouraged to limit their investments exposure on any investment note or Islamic investment note executed or offered on or through a P2P platform to a maximum of RM50,000 at any one time in order to manage their risk exposure. However, retail investors should be aware and cautious of the risks of investing in investment note or Islamic investment note beyond the advised RM50,000 threshold.
Does the SC mandate any cooling-off period for investments made on a P2P platform?
The SC does not mandate any cooling-off period for investments made on a P2P platform. However, P2P operators have the discretion to provide a cooling-off period for investors on their platforms.
What information are investors entitled to obtain on a P2P platform?
The P2P operator is obliged to make available on its P2P platform relevant information pertaining to the issuers such as key characteristics of the issuers, purpose of the fundraising, its business plan and financial information.In addition, information on its general risk warnings, appropriate risk disclosure of issuers, risk scoring mechanism, criteria for determining a default, processes to manage a default, and information on late payment and default rate of issuers hosted on its platform will also be made available on the P2P platform.

Further, all fees, charges and other expenses relating to the investment must be disclosed by the P2P operator.
What happens when there is a complaint or dispute regarding the investment?
A P2P operator must have in place processes for complaints handling or dispute resolution. Such information must also be made accessible to all investors.