The Rule Of Investor Suitability In Private Equity Crowdfunding In China

As a funding method established during the development of Internet financing,crowdfunding involves three parties: the financer,the investor and the crowdfunding platform.Investors of crowdfunding are mostly unprofessionally investors.However,internal risks of crowdfunding increase the possibility of investors' suffering from losses,and the protection of investors in crowdfunding will promote the continuing development of crowdfunding.At the end of 2014,the Securities Association of China published Measures for the Financing of Private Equity Crowdfunding(Trial Implementation)(Draft),which defines the equity crowdfunding in China as private offering.In practice,the crowdfunding platforms strictly comply with such provisions,and the number of investors in any financing project is limited within 200,which ensures the crowdfunding as private offering.As an important mechanism of investor protection in security market,the rule of investor suitability imposes the suitability obligation on the security broker and it regulates its promotion and sales activity.The regulator may establish the rule of investor suitability in crowdfunding,which will regulate activities of the crowdfunding platform as intermediary agencies and reduce the risk that investors face in the crowdfunding.The first chapter introduces the basic content of the rule of investor suitability in private equity crowdfunding.Crowdfunding is a financing method that the enterprise publishes its financing project to attract investors and uses equities as the return to investors.Its character includes: small amount,public,dispersive.At present,the regulator in China has not formally defined the crowdfunding.For the avoidance of being deemed as illegal fund-raising,the crowdfunding in China is strictly limited as private offering.The rule of investor suitability is a revision of the rule of caveat emptor in the traditional security market,which is based on the protection of investors' reliance interest due to their trust in the profession of security brokers.The contents of the investor suitability rule include: security brokers' suitability obligations,the classification of investors,and accountability and relief manners.The second chapter firstly introduces the internal risks of private equity crowdfunding,including crowdfunding project's fraud,vague rights and obligations of the crowdfunding platform and defective mechanism for investors' quit.If the protection of investors in crowdfunding is not promoted,rights and interests of investors might be damaged,which is to the disadvantage of the development of crowdfunding.Then the writer analyses the reasonability of applying the rule of investor suitability in private equity crowdfunding from three aspects: the legal basis,function and application of the rule of investor suitability in China.The writer also analyses the particularity of applying the rules of suitability in private equity crowdfunding,including the investor,the crowdfunding platform and their relationship.The third chapter introduces the rule of suitability in private equity crowdfunding in China.Firstly,the writer summarized the provisions of the rule of suitability under the regulation of private equity crowdfunding in China,and analyses the application of the rule of suitability by the crowdfunding platform in practice.Then the writer compares the rule of suitability under regulations of crowdfunding in America,UK and Italy,and points out the deficiency of such rule in China,including the legal force of regulations is not sufficient,the classification of investors is unreasonable,the suitable obligation of the crowdfunding platform is not practicable and the investor lacks the way of relief.The fourth chapter analyses the rule of maintaining the balance of efficiency and fairness on applying the investor suitability rule in private equity crowdfunding.When establishing the investor suitability rule in private equity crowdfunding,the regulator should give the priority of promoting the capital formation without prejudice to investors benefits.For regulators in China,it should establish the rule of investor suitability including the classification of investors,the suitability obligation of crowdfunding platform and improving investors' relief.The private equity crowdfunding is the finance innovation on Internet and it meets realistic needs of solving middle and small sized enterprises' financing problem in China.Due to internal risks of crowdfunding and problems arising in the process of private equity crowdfunding in China,the regulator should enhance the protection of investors,which is the basis of the continued and healthy development of private equity crowdfunding.The authority should specify the regulation of crowdfunding based on its characters so as to protect weak investors.