Journal of International Studies , Vol.

18, 2022, pp: 31–62

JOURNAL OF
INTERNATIONAL STUDIES
[Link]

How to cite this article:

Yeon, A. L., & Puteri, U. T. (2022). Equity crowdfunding industry regulations in
Malaysia and Indonesia: Prospects and challenges during the COVID-19 pandemic.
Journal of International Studies, 18, 31-62. [Link]

EQUITY CROWDFUNDING INDUSTRY REGULATIONS

IN MALAYSIA AND INDONESIA: PROSPECTS AND
CHALLENGES DURING THE COVID-19 PANDEMIC

Asmah Laili Yeon & 2Uni Tsulasi Putri

1

1
School of Law, Universiti Utara Malaysia, Malaysia
2
Faculty of Law, Universitas Ahmad Dahlan, Indonesia

1
Corresponding author: asmah485@[Link]

Received: 3/2/2022 Revised: 23/2/2022 Accepted: 13/4/2022 Published:17/10/2022

ABSTRACT

Equity crowdfunding (ECF), also known as crowd-investing or

investment crowdfunding, is a way of boosting capital used by
start-ups and early-stage companies. Fundamentally, ECF offers
the company’s securities to potential investors in exchange for their
investment. As a result, each investor is authorized to a share in the
company proportionate to their financing. This paper discusses the
ECF industry regulations in Malaysia and Indonesia in terms of its
prospects and challenges during the COVID-19 pandemic through
doctrinal research using the conventional legal method. Critical
and analytical approaches were used to achieve its objectives. The
findings showed that ECF has seen a growth of over 170 percent
in new accounts registered in Malaysia, with 65 percent of them
being retail investors. There is a great demand from individual and
retail investors who are looking to invest in various investment
products and services made accessible to them. The Capital Markets

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 Journal of International Studies , Vol. 18, 2022, pp: 31–62

and Services Act 2007 plays an important role to provide good

governance of ECF business in Malaysia. Further, the Guidelines on
Recognized Markets (GRM 2020) (Item 1.01 GRM) and section 15
(g) of the Securities Commission Act 1993 clarifies the function of
the Securities Commission to regulate ECF activities and protect the
interests of the parties involved, especially investors. In Indonesia, the
main regulator of ECF is the Financial Services Authority and the new
ECF law is the Financial Services Authority Regulation Number 57/
POJK.04/2020 concerning Securities Crowdfunding. The regulation
aims to extend the scope of the crowdfunding which includes debt-
based securities and sukuk. The prospects of ECF business in both
countries are great especially in the era of the pandemic because the
fintech, which has led to new investment products and services, is a
vital force that helps democratize investments and will continue to
increase as investors become more educated and informed. In terms of
the ECF law, comparatively, it is different in terms of the governance,
process and procedure, types of investors, etc. which are applicable in
both Malaysia and Indonesia.

Keywords: Equity crowdfunding, platform operator, digital business.

INTRODUCTION

On Thursday, 30 January 2020, the World Health Organization

Director-General made a final decision on the determination of a
Public Health Emergency of International Concern (PHEIC) of the
outbreak of the 2019 novel Coronavirus (2019-nCoV) (WHO, 2020c),
which is now known as the COVID-19 pandemic. Based on the
report of the Chinese authorities’ determination that the outbreak was
caused by a novel coronavirus on 9 January 2020, the first recorded
case outside the People’s Republic of China was reported in Thailand
on 13 January 2020 (WHO, 2020b). Subsequently, COVID-19 was
transmitted worldwide including Malaysia and Indonesia.

The new SARS-CoV-2 virus that caused the disease COVID-19

first arrived on the shores of Malaysia on 25 January 2020. A month
later, case numbers rose to 22 positive cases in February 2020 and
following that, case numbers ballooned 20 times to 428 cases by
mid-March 2020. To stem the transmission, Malaysian authorities
imposed a two-week Movement Control Order (MCO) on 18 March

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 Journal of International Studies , Vol. 18, 2022, pp: 31–62

2020. Businesses and facilities that were considered non-essential

were closed. Interstate travel was heavily restricted. Public sports,
religious programmes and events were postponed. A year later, the
pandemic situation in Malaysia continued to increase in number. As
of 27 February 2021, the total number of active cases for Covid-19
in Malaysia was 27,028 and the total number of confirmed cases was
293,315. The statistics showed that the total number of recovered
cases was 270,166 (90.56%) and the total number of deaths was 1,121
(0.38%) (National CPRC Ministry of Health, 2021).

The Indonesian President announced the first two confirmed

COVID-19 cases in Indonesia (WHO, 2020a) on 2 March 2020.
Eventually, COVID-19 spread to all 34 provinces in Indonesia on 10
April 2020, with 3,512 positive cases (Mukaromah & Ratriani, 2020).
As of 6 March 2021, COVID-19 cases in Indonesia reached 1,373,836
confirmed cases, with 147,172 cases in care, 1,189,510 cases cured,
and 37,154 deaths (KawalCovid19, 2021; Komite Penanganan
Covid-19 dan Pemulihan Ekonomi Nasional, 2021; Mashabi, 2021).

In response to the pandemic, the Indonesian authorities issued

Presidential Regulation Number 21 Year 2020 concerning Large-
Scale Social Restriction to Accelerate the Handling of the Corona
Virus Disease 2019 (COVID-19). The regulation had affected several
sectors, including the economy. Yamali and Putri, (2020) asserted that
COVID-19 impacted the economic sector resulting in inflation and
losses in the tourism sector which was reflected in a decrease in hotel
occupancy rates. In Klaten and Wonogiri: Klepu Market, Kalikotes
Market, and Wonogiri City Market suffered economic and social
losses due to the COVID-19 pandemic. As the local government
implemented large-scale social restriction policy, the traders suffered
a 50 percent loss due to the decrease in the number of customers to the
markets (Azimah et al., 2020).

There is no denying that this pandemic had severely impacted both

Malaysia and Indonesia in the context of macroeconomics and
the economic well-being of the people. The main disruption to the
Malaysian and Indonesian economies were due to two factors, the first
was the spillover effect from the effects of the coronavirus abroad,
and the second was the situation in the respective countries as a result
of the enforcement of movement controls imposed. An overview of
the global recession in 2020 can be seen in Figure 1.
Figure 1
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 Journal of International Studies , Vol. 18, 2022, pp: 31–62

Figure 1
Overview of World Recession in 2020
Overview of World Recession in 2020

ECF
ECF is an isactan act individuals
in which in which investindividuals invest
in a start-up company that isin a start-up
exempt from the stockcompany
market list.
that is exempt
If the result goes well, from the stock
the shareholder will be market
given partiallist. Ifofthe
control resultand
the business goes well,
able to the
earn profit.
Back in those days, only the wealthy and businessmen were willing to invest in start-ups. In democratizing
shareholder will be given partial control of the business and able
the investment procedure, the ECF platform has helped to open the gates to investors directly, leading to a
to
earn profit. Back in those days, only the wealthy and businessmen
'crowd' and thus ECF. The crowdfunding framework offers an interesting new platform in which to re-
were
examine willing
a question to invest
in view of the in start-ups.
pronounced profitsIn
anddemocratizing
extreme possibilities of theECFinvestment
along with the
shifting regulatory landscape globally: Is the model of law development viable in enhancing or impeding
procedure,
the development theof theECF platform has helped to open the gates to investors
ECF industry?
directly, leading to a ‘crowd’ and thus ECF. The crowdfunding
In Malaysia, the ECF is an alternative fundraising site controlled by Malaysia's Securities Commission
framework offers an interesting new platform in which to re-examine
(SC). Currently, there are 10 registered ECF such as Leet Capital, Ata Plus, Pitchin, Ethis Ventures, Fundnel
aandquestion in Malaysian
others. The top view ofcompanies
the pronounced
involved in equityprofits and extreme
crowdfunding (ECF) are ATA possibilities
PLUS Sdn Bhd,
of ECF
Netrove along
Ventures Group,with
and Alixthe shifting
Global Sdn Bhd. Inregulatory
Malaysia, the ECF landscape globally:
statistics as of 31 December 2019Is
showed that the distribution by fundraising amount which ranged from RM500,000 and less (50%),
the model of law development viable in enhancing or
>RM500,000 to RM1.5 million (27%) and >RM1.5 million to RM3 million (23%). It consisted of 80
impeding the
development
successful campaigns, of with
the RM73.74
ECF industry?
million raised and involved 77 successful issuers (Securities
Commission Malaysia, 2020). This has shown that the ECF business has become one of the new investment
sources in Malaysia.
In Malaysia, the ECF is an alternative fundraising site controlled
by Malaysia’s Securities Commission (SC). Currently, there are 10
registered ECF such as Leet Capital, Ata Plus, Pitchin, Ethis Ventures,
3
Fundnel and others. The top Malaysian companies involved in equity
crowdfunding (ECF) are ATA PLUS Sdn Bhd, Netrove Ventures
Group, and Alix Global Sdn Bhd. In Malaysia, the ECF statistics as
of 31 December 2019 showed that the distribution by fundraising
amount which ranged from RM500,000 and less (50%), >RM500,000
to RM1.5 million (27%) and >RM1.5 million to RM3 million (23%).
It consisted of 80 successful campaigns, with RM73.74 million raised

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 Journal of International Studies , Vol. 18, 2022, pp: 31–62

and involved 77 successful issuers (Securities Commission Malaysia,

2020). This has shown that the ECF business has become one of the
new investment sources in Malaysia.

The SC has enacted new rules with regard to registration of ECF

platforms including good governance guidelines for ECF platform
operators. This provision is contained in Section 377 of the Capital
Market Services Act 2007 (CMSA) read in conjunction with CMSA
Subdivision 4, Part 2, Part II and the publication of the Recognized
Markets Guidelines (GRM 2020) (Item 1.01 GRM). Section 15 (g) of
the Securities Commission Act 1993 (SCA 1993) that states that the
objective of this regulation is to observe the activities of the ECF and
protect the well-being and rights of the parties involved, particularly
investors. The ECF platform operator must meet the requirements in
the GRM, before the SC can issue an ECF license (Item 2.01 GRM).
Following the launching of ECF regulations, Liz (2015) reported that
the SC and registered ECF platforms have executed various efforts
to inform the public and entrepreneurs about alternative financing of
companies.

In the case of Indonesia, in 2018 before the pandemic, the Indonesian

authorities through the Financial Services Authority (hereinafter
referred to as FSA) issued FSA Regulation Number 37/POJK.04/2018
concerning ECF. The regulation is aimed to provide an alternative
funding to society by ECF method. ECF focuses on collecting funds
from society as investors by offering the shares of a company. Under
the ECF FSA Regulation, a company status is termed as a limited
liability company (hereinafter as referred as LLC).

During the COVID-19 pandemic, on 11 December 2020, FSA

substituted the FSA Regulation concerning Equity Crowdfunding to
FSA Regulation Number 57/POJK.04/2020 concerning Securities
Crowdfunding (hereinafter referred to as SCF). The main purpose of
the regulation is to extend the scope of the crowdfunding, from limited
only by offering “shares” to offering “securities” in a broader sense,
which includes debt-based securities and sukuk; as the main target of
the SCF FSA Regulation is broader. Previously, the issuer company
was a LLC and could offer “shares”; however, under the new SCF
2020 FSA Regulation, the issuer company shall be a business entity
which is not limited only to LLC.
The SCF mechanism is provided by an operator. The operator must be

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 Journal of International Studies , Vol. 18, 2022, pp: 31–62

an Indonesian legal entity which is responsible to provide, manage and

operate the crowdfunding. As of now, there are three SCF operators
(which were previously ECF platforms) in Indonesia: Santara, Bizhare,
and CrowdDana. Prior to the issuance of the SCF FSA Regulation,
the signing of the services agreement between the operators and the
Indonesian Central Securities Depository was officially executed in
the middle of the COVID-19 pandemic, with: Santara on 6 March
2020, Bizhare on 27 March 2020, and CrowdDana on 19 August
2020. (Indonesian Central Securities Depository, 2020, 2021).

On 4 January 2021, the Indonesian authorities officially launched the

SCF which is expected to be a technology-based alternative funding
for societies especially small and medium enterprises (SMEs). There
are 23 operator candidates. The Indonesian government has urged
investors as well as the young generation to contribute in SCF (Intan
& Rahmawati, 2021). In accordance with the physical distancing
policy, there is limited physical movement. Thus, money which is
usually spent on ‘moving’ activities such as spending on consumption
could be transferred to electronic securities trading.

This paper focuses on the nature of the ECF and the role of its
respective regulations in Malaysia and Indonesia; its prospects and
challenges during the COVID-19 pandemic and whether it is a boon
or bane to the ECF industry.

LITERATURE REVIEW

Globally, the effect of the COVID-19 pandemic on the economy,

education, social affairs and other sectors has been quite devastating.
This can be seen in the education sector with the closure of educational
institutions and many small and medium companies especially in the
food, retail and entertainment sectors. Furthermore, it also uncovered
the inability of certain governments or the reluctance of leaders to grant
incentives, introduce economic measures and support to address rising
unemployment rates, volatile small businesses and severely affected
economic sectors. According to Dawson and Fouksman (2020) when
support was evident, for example in the case of South Africa, the
inadequacy of one-time emergency income replacement funds has
mooted awareness of the long-term consequences of income insecurity
and inequality, chronic unemployment and systemic inequality. In

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South Africa, even before the virus hit badly, the unemployment rate
in the country was a shaking 29 percent (Bronkhorst, 2020). It was
predicted following the closure of most economies, that unemployment
rates would reach 50 percent (Charles, 2020). In comparison, by the
end of April 2020, 30 million Americans had filed for unemployment
in the United States, increasing the unemployment rate from 4 to 15
percent. Similarly in Canada, unemployment was at 13 percent, 9
percent in the U.K., 8.4 percent in Italy and 5.8 percent in Germany
(Kretchmer, 2020).

Throughout the pandemic, GoFundMe in the United States had

seen a sharp increase in requests for financial support during the
COVID-19 outbreak. Shortly after the World Health Organization
(2020) announced a world-wide epidemic, 35,000 new COVID-
related public funding campaigns were launched on GoFundMe. In
mid-March 2020 there was a significant jump of about 60 percent in
campaigns run by ECF platforms.

There are strongly pronounced potential benefits linked to ECF.

Entrepreneurs may access the money they need to make it easier for
their company to thrive, as compared to the situation before which
their company failed to get financial support from banks, angel
investors, or venture capitalists. Indeed, several enterprises could not
have worked if they had not been able to raise funds by crowdfunding.
There were 39 ECF platforms from all styles of crowdfunding models
worldwide, representing 7.3 percent of the 452 platforms. In addition,
a total of US$88 million was obtained from ECF in 2011 and from
all platforms and other crowdfunding models, a total of US$1441
million. (Ahlers et al., 2012; Crowdfunding Industry Report 2012).

In selected Organisation for Economic Co-operation and Development

(OECD) countries around the world, such as, the Netherlands,
the United Kingdom, France, Ireland, Australia, and Switzerland,
entrepreneurs managed to build up capital by selling their shares in
companies via crowdfunding or by making open calls to investors
through Internet portals. Donations, rewards-based, and lending
are other examples of crowdfunding sites (for a description, refer
Agrawal et al., 2011; Ahlers et al., 2012; Belleflamme et al., 2010,
2013; Bradford, 2012; Burtch et al., 2012; Griffin, 2012; Mollick,
2012; Schwienbacher & Larralde, 2013).
In Canada crowdfunding is governed under ECF law. The latest

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rules regarding ECFs are regulated under rule NI 45-110 which

facilitates start-up companies to get funding for their businesses
and activities. This is to increase the individual investment limit in
connection with any distribution subject to crowdfunding exemption
and increase the maximum sum that can be raised in any 12-month
period from $500,000 to $1.5 million (Morin et al., 2021). The belief
that a country’s legal system’s flexibility supports access to finance is
backed by empirical evidence (Beck et al., 2005; Cumming & Johan,
2008). Nevertheless, it is inconclusive, whether securities laws should
be flexible to mandate demands to allow crowdfunding.

Among the ECF-related challenges for example, through

crowdfunding, an entrepreneur can waste revenue or increase equity
capital by reducing equity holdings held by investors (public) and
issuing more shares to himself. In this situation, entrepreneurs
basically have to get more shares and not to invest the money earned
in suitable projects. Therefore, to minimize such risks, it is necessary
to impose certain conditions on entrepreneurs, platform operators and
investors.

In Malaysia, according to Wasiuzzaman (2021), investors in ECF

need adequate disclosure of information and regulations to lower the
risk of their investments in ECF projects. Further, Wasiuzzaman’s
(2021) findings showed that the quality of perceived information
has a negative impact on risk of perceived investment. Regulation
has a weak impact on risk of perceived investment. The relationship
between information quality and risk is moderated by regulations.
According to a study by Rosadi (2015) the rapid development of
fintech in Indonesia, has raised concerns about the legal protection
of its users because there are no clear regulations governing fintech.
Whether it is related to privacy protection issues or the data privacy
of users who register themselves in online platforms. Therefore, the
issue of privacy protection and data privacy has become an urgent
agenda in Indonesia.

RESEARCH METHODOLOGY

Research Design: This study is a doctrinal research which adopted the

conventional legal method. In particular, traditional or conventional
legal methods can be divided into four, namely the philosophical,

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historical, comparative, and critical and analytical method. In order

to achieve its objectives, two techniques were used—critical and
analytical method. The technique of interpretation of statutes was
employed which consisted of the literal rule, golden rule, mischief
rule and purposive approach. Here, the provisions relating to
crowdfunding legislations were analyzed. Secondly, the doctrine
of judicial precedent was also applied to analyze cases related to
crowdfunding. Additionally, a comparative legal method was used
as this research involved comparative legal analysis of Malaysia
and Indonesia. Comparative analysis was conducted between both
countries because these are model countries in ASEAN which have
adopted two different laws, common law (Malaysia) and civil law
(Indonesia).

Research Scope: The legal documents referred in this research

in the context of Malaysia included the CMSA 2007, Securities
Commission’s Guidelines on Regulation of Markets, the Companies
Act 2016 and other relevant laws. As for Indonesia, among others,
primary legal sources included the Indonesian Civil Code, Law
Number 19 of 2016 concerning amendments to Law Number 11
of 2008 concerning information and electronic transactions, Law
Number 21 of 2011 concerning the financial services authority, Law
Number 9 of 1961 concerning fund raising, Law Number 8 of 1995
concerning capital market, Law Number 40 of 2007 concerning LLC
and Law Number 20 of 2008 concerning micro, small, and medium
enterprises.

Types of data: The source of data consisted of primary data and

secondary data. The primary data for this study were the statutes,
regulations, rules, guidelines and cases relating to crowdfunding. The
secondary data comprised books, legal documents, and articles from
journals and online resources. Data were collected from the Sultanah
Bahiyah Library in Universiti Utara Malaysia, Ahmad Dahlan
University Library in Indonesia and also from other online databases.

Data Analysis: Generally, the primary and secondary data were

analyzed using content analysis; specifically, the provisions relating
to ECF under the Malaysian Capital Markets Act 2007, Securities
Commission’s Guidelines on Regulation of Markets, the Companies
Act 2016 and other relevant laws. As for Indonesia, the primary legal
sources was the main or binding legal substance that included among

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others the Indonesian Civil Code, Law Number 19 of 2016 concerning

amendments to Law Number 11 of 2008 concerning information
and electronic transactions, Law Number 21 of 2011 concerning
the financial services authority, Law Number 9 of 1961 concerning
fund raising, Law Number 8 of 1995 concerning capital market, Law
Number 40 of 2007 concerning LLC and Law Number 20 of 2008
concerning micro, small, and medium enterprises. Other relevant
laws were analyzed using interpretation of statutes techniques. While,
court cases related to ECF were analyzed using the doctrine of judicial
precedent. The descriptive analysis was carried out with the purpose
of stating the rules and principles of the law regarding ECF. Analytical
analysis was employed to thoroughly investigate, and evaluate every
aspect of the factual data in the study.

FINDINGS

Law and Regulation of ECF in Malaysia and Indonesia

Malaysia

The main objective of the ECF law introduced by the SC serves as

protection of the integrity of the Malaysian capital markets and also
ensuring adequate safeguard for retail investors of ECF businesses.
Malaysia is the earliest country in Southeast Asia, with distinct
regulations for ECF and peer-to-peer financing platforms (Azrina
Azmel, 2021).

The ECF law provides that the ECF platform must comply with
registration provisions, terms and conditions. In addition, as an
approved Recognized Market Operator (RMO), they shall fulfill
the obligations and responsibilities as provided by the stipulated
laws and regulations. The SC is responsible for: setting fundraising
limits, reviewing platform status, ensuring that compliance is
implemented, regulating termination or cancellation matters,
reporting and transparency standards. ECF operators are allowed
by the SC to set a percentage on the funds raised as platform fees in
accordance to the ECF Guidelines.
ECF investors are divided into three categories namely sophisticated,

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angel and retail investors. Each of these categories of investors

has an investment limit and is required to declare the category
they belong to before the investment is executed. Substantive laws
governing ECF businesses in Malaysia include the CMSA 2007,
GRM 2020 and the Companies Act 2016. Legal protection for ECF
participants (issuers, ECF operators and investors) in Malaysia are
stipulated under various statutes and guidelines i.e. the CMSA 2007,
Companies Act 2016, SCA 1993 and GRM 2020.

The new rules in governing ECF pertaining to platform registration has

been introduced by Malaysia’s SC as stipulated in section 377 of the
CMSA 2007. Under this section, the SC has been entrusted the power
to issue guidelines and practice notes which are related to ECF i.e.
the GRM 2020. The same goes for the provision of good governance;
thus section 377 must be read together with Subdivision 4, Division 2,
Part II of CMSA 2007 and the GRM 2020 (Item 1.01 GRM). Section
377 of CMSA 2007 stipulates that the SC has the authority to revoke,
vary, revise or amend wholly or partially any guidelines and practice
notes issued. The SC is authorized to take any one or more of the
actions as stated in sections 354, 355 (only for derivatives exchange
and clearing house) or 356 of the CMSA 2007 as it thinks fit on any
person who violates or fails to follow any guideline or practice note
issued.

The basic requirements regarding the business entity of the ECF

operator is that the company must be established in Malaysia. This
is in accordance with GRM 2020. Similarly, the issuer must be a
registered entity under the Companies Act 2016. The ECF platform
operator must be a locally incorporated private company and of
limited liability partnerships (excluding exempt private companies).
There are entities which are prohibited from raising funds through an
ECF platform namely:

“a commercially or financially complex structures (i.e.

investment fund companies or financial institutions);
public-listed companies and their subsidiaries; companies
with no specific business plan or its business plan is to
merge or acquire an unidentified entity (i.e. blind pool);
companies other than a micro fund that propose to use
the funds raised to provide loans or make investments in
other entities; companies other than a micro fund with

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paid-up share capital exceeding RM5 million; and any

other type of entity that is specified by the SC (GRM
2020).”

As for ECF operators, new requirements for the purpose of registration

have been inserted into section 34 of the CMSA 2007. In relation to
the duties of ECF operator in this context, section 36 of the CMSA
2007 provides that a ECF operator shall:

“(a) comply with any direction issued by the Commission,

whether of a general or specific nature, and the recognized
market operator shall give effect to such directions;
and (b) provide such assistance to the Commission, or
to a person acting on behalf of or with the authority of
the Commission, as the Commission or such person
reasonably requires.”

While section 36A provides on the withdrawal of registration. The

provision states that:

“(1) Subject to subsection (4), where the Commission is

satisfied that it is appropriate to do so in the interest of
the investors, in the public interest or for the maintenance
of an orderly and fair market, the Commission may, by
notice in writing, withdraw the registration with effect
from a date that is specified in the notice.”

In the notice in subsection (1), the SC, should declare the grounds
of withdrawal, however, the SC should not exercise its power in the
following situation:

“Under subsection (1) in relation to a recognized market

operator that has been registered under subsection 34(1)
unless it has given the recognized market operator an
opportunity to be heard. Any withdrawal of registration
made under this section shall not operate so as to (a)
avoid or affect any agreement, transaction or arrangement
entered into by the recognized market operator whether
the agreement, transaction or arrangement was entered
into before or after the withdrawal of the registration
under subsection (1); or (b) affect any right, obligation

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or liability arising under such agreement, transaction or

arrangement.”

Under Chapter 13 of the GRM 2020, there are three entities involved
in the ECF business i.e. (i) ECF operator means an Recognized Market
Operator (RMO) who operates an ECF platform and registered with
the SC; (ii) issuer means a person who is the host of an ECF platform
and offers its shares on the ECF platform; and lastly the investors as
defined by the GRM 2020 “is a person who invest in any issuer hosted
on the ECF platform, subject to the following limits –(a) Sophisticated
investors: no restrictions on investment amount; (b) Angel investors:
a maximum of RM500,000 within a 12-month period; and (c) Retail
investors: a maximum of RM5,000 per issuer with a total amount of
not more than RM50,000 within a 12-month period.”

The threshold of funds raised from ECF platform in accordance to

paragraph 13.19:

“An issuer may only raise, collectively, a maximum

amount of RM10 million through ECF platforms in its
lifetime, excluding the issuer’s own capital contribution
or any funding obtained through a private placement
exercise.”

In ensuring the RMO fulfil its responsibility, the obligations are

specified in chapter 6 of the GRM 2020, that an ECF operator must:

“(a) carry out a due diligence exercise on prospective

issuers planning to use its platform; (b) ensure the issuer’s
disclosure document lodged with the ECF operator is
verified for accuracy and made accessible to investors
through the ECF platform; (c) inform investors of any
material adverse change to the issuer’s proposal as set
out under paragraph 13.09; (d) ensure that the fundraising
limits imposed on the issuer are not breached; and (e)
ensure that the investment limits imposed on the investor
are not breached.”

In preserving the markets integrity, the GRM 2020 specify the

provisions in relation to trading operations (paragraph 13.32) and
the promotion of market transparency, paragraph 13.33. It is the

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requirement for the ECF operator to:

“(a) ensure trading information, both pre-trade and

post-trade, is made publicly available on a timely or
real-time basis, as the case may be; (b) make available in
a comprehensive manner and on a timely basis, material
information or changes to tradable securities; (c) ensure
all information relating to trading arrangements and
circumstances arising thereof where relevant, are made
publicly available; and (d) ensure timely and accurate
disclosure of all material information necessary for
informed investing and take reasonable steps to ensure
that all investors enjoy equal access to such information.”

There are many types of action which can be taken by the SC against
the person who has committed a breach of guideline and practice note.
It is based on any of the following types of sanctions (Section 354 of
CMSA 2007):

“direct the person in breach to comply with, observe,

enforce or give effect to such rules, provisions, written
notice, condition or guideline;
• impose a penalty in proportion to the severity or
gravity of the breach on the person in breach, but in
any event not exceeding five hundred thousand
ringgit;
• reprimand the person in breach;
• require the person in breach to take such steps as
the Commission may direct to remedy the breach or
to mitigate the effect of such breach, including
making restitution to any other person aggrieved by
such breach.”

If there is a breach of Part VI or guidelines issued pursuant to Part VI,

the SC can:
“refuse to accept or consider any submission under Part
VI;
• in the case of a promoter or a director of a corporation,
in addition to the actions that may be taken under
paragraphs (a) to (e) above, the following actions
may be taken by the Commission:

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• impose a moratorium on, or prohibit any trading of

or any dealings in, the corporation’s securities or in
any other securities which the Commission thinks
fit by the promoter or director or any person(s)
connected with the promoter or director; or
• issue a public statement to that effect that in the
Commission’s opinion, the retention of office by
the director is prejudicial to public interest.”

Further under Section 362 (2) the SC has the power to:

“direct the person in breach to comply or observe the

GRM 2020; impose penalty in proportion to the severity
or gravity of the breach on the person in breach but not
exceeding one million ringgit; to remedy or mitigate
including making restitution to any other person(s)
aggrieved by such breach; refusal to consider any
submission and in the case of promoter or director of
the company, or impose a moratorium or issue a public
statement.”

Indonesia

The equity crowdfunding industry was first recognized in Indonesia

on 31 December 2018 as the Financial Services Authority (FSA)
issued Regulation No. 37/POJK.04/2018 concerning crowdfunding
services through information technology-based share offerings known
as equity crowdfunding. Two years later, the Equity Crowdfunding
2018 Regulation was substituted by the FSA Regulation No. 57/
POJK.04/2020 concerning securities offering through information
technology-based crowdfunding services known as securities
crowdfunding on 10 December 2020 and came into force on 11
December 2020. The relatively recent regulation aims to expand the
object offered in crowdfunding services, from previously limited to
“shares” (equity-based securities) to “securities,” which cover not
only equity-based securities but also debt-based securities and sukuk.
Therefore, FSA Regulation No. 57/POJK.04/2020 uses the term
“securities crowdfunding” rather than “equity crowdfunding”.

In consideration of both, the FSA Regulation No. 37/POJK.04/2018

concerning equity crowdfunding and the FSA Regulation No. 57/

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POJK.04/2020 concerning securities crowdfunding, place emphasis

on Act No. 8 of 1995 concerning the capital market and Act No.
21 Year 2011 concerning the Financial Services Authority (FSA).
Basically, both the Capital Market Act and the FSA Act Law do not
clearly regulate ECF or SCF. Under Indonesian Law Number 11
Year 2012 concerning legal drafting, the hierarchy of legal source
in Indonesia consists of: (i) 1945 Constitution; (ii) Decision of
People’s Consultative Assembly; (iii) Law/Government Regulation
Constituting the Law; (iv) Government Regulation; (v) Presidential
Regulation; (vi) Provincial Regulation; and (vii) Regency Regulation.
Other regulations issued by an institution which is established based
on the regulation shall be recognized and have legal binding power
as long as the higher regulation order so. Under the FSA Act, FSA
is an authority which has regulatory and supervisory duties towards
financial services in the capital market sector. Based on this legal
basis, the FSA attempted to issue FSA Regulation considering that the
ECF has changed to securities crowdfunding.

Article 2 section (1) FSA Regulation concerning SCF states that,

“crowdfunding services are financial services activities in the capital
market sector.” Its section (2) mentions that a party carrying out
crowdfunding activities is considered a party carrying out financial
services activities in the capital market sector. Meanwhile, Article
1 Number 13 of the Capital Market Act states that “capital market”
is an activity related to: (1) public offering and securities trading,
(2) public companies related to the securities it issues, and (3)
institutions and professions related to securities. Furthermore, public
offering, in article 1 point 15 of the Capital Market Act, is defined
as the activity of offering securities by an issuer to sell securities to
the public based on the procedures stipulated in the Capital Market
Act and its implementing regulations. Article 3 of the SCF FSA
Regulation states that an offering of securities by an issuer through
securities crowdfunding is not a public offering as referred to in the
law concerning the capital market if:

a. securities offerings are made through an operator that has

obtained a license from the FSA;
b. securities offering is conducted for a maximum period of 12
(twelve) months; and
c. the total fund raised is a maximum of IDR 10,000,000,000 (ten
billion rupiah).

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Based on the regulations in the Capital Market Act, the FSA Act and
the FSA Regulation of SCF, there are regulatory inconsistencies. On
one hand, article 2 of SCF FSA Regulation considers crowdfunding
services as financial activities in the capital market sectors, while
it is not a public offering activity as referred in the Capital Market
Act under several circumstances. However, both ECF and SCF FSA
Regulation represent a better solution to provide the legal basis of
ECF and/or SCF industry in Indonesia rather than no legal basis.

As previously discussed, the FSA Regulation No. 37/POJK.04/2018

concerning equity crowdfunding (ECF) has been substituted with FSA
Regulation No. 57/POJK.04/2020 concerning securities crowdfunding
(SCF). The alteration of ECF regulation to SCF regulation does not
necessarily eliminate ECF activities. The new SCF Regulation aims
to expand the scope and subject matter of crowdfunding services.
In particular, the previous 2018 ECF Regulation covers only share-
offering activities through crowdfunding services, while the 2020
SCF Regulation covers not only share-offering but also equity-based
securities in a wider sense than shares, debt-based securities, and
sukuk. Article 28 section (1) letter (a) of FSA Regulation No. 57/
POJK.04/2020 concerning SCF states that equity-based securities
shall be one of the securities offered through the crowdfunding
services platform (Peraturan Otoritas Jasa Keuangan Nomor 57/
POJK.04/2020 tentang Penawaran Efek Melalui Layanan Urun Dana
Berbasis Teknologi Informasi, 2020).

The 2020 SCF FSA Regulation uses the term “securities-offering”

rather than “share-offering”. Securities shall mean commercial paper
such as debt instruments, commercial securities, shares, bonds,
evidence of debt, collective investment units, futures contracts for
securities, and securities derivatives (POJK No. 57/POJK.04/2020,
Art. 1). The existence of “shares” in the definition of securities affirms
that the new regulation does not eradicate ECF. Under the 2020 SCF
FSA Regulation, it is logical to conclude that ECF is part of SCF.

There are three main actors in the ECF activity: (1) the Operator; (2)
the Issuer; (3) the Investor. These actors have remained the same in the
2020 SCF FSA Regulation. However, there are several amendments
to the parties’ requirements as the main purpose of the 2020 SCF FSA
Regulation is to expand the parties’ scope in crowdfunding activities.

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An operator shall mean “an Indonesian legal entity that provides,

manages, and operates crowdfunding services” (FSA Regulation No.
57/POJK.04/2020, Art. 1 (5)). By “Indonesian,” it means its legal
entity status must be established in and within Indonesian regulations.
By “legal entity,” means the operator must be established to be either
as LLC or cooperation (FSA Regulation No. 57/POJK.04/2020,
Art. 8). Suppose the operator chooses to be LLC; in this case, the
company may be established and owned by an Indonesian citizen or
Indonesian legal entity. Other than that, a foreign citizen or foreign
legal entity may become the shareholder or the owner of the operator
company with a maximum of 49% of shares (FSA Regulation No.
57/POJK.04/2020, Art. 9). The LLC operator shall have a minimum
paid-up capital of IDR2,500,000,000, at the time of filing the request
of permission.

The new 2020 SCF FSA Regulation covers the new form of an
operator, which is cooperation. Under its article 10, cooperation
is limited to those who conduct business on services. Further, the
cooperation operator shall have a minimum self-owned capital of
IDR2,500,000,000 at the time of filing the request of permission.
Within Indonesian company law, cooperation legal entity is regulated
under Act No. 25 of 1992 concerning the cooperation. Under article
41 of the Cooperation Act, self-owned capital (of the cooperation)
consists of principal savings, mandatory savings, reserved funds and
grants. The explanation of article 11 2020 SCF FSA Regulation also
mentions and refers to article 41 of 1992 Cooperation Act.

Under the 2020 SCF FSA Regulation, issuers shall be “an Indonesian
business entity, both the legal entity one or the non-legal entity one”.
Similar to the prior 2018 ECF FSA Regulation, the issuer shall be in the
form of LLC, which is able to only issue and offer “shares”. However,
in the new SCF regime, there is no clear regulation on whether
foreign ownership of an issuer’s business entity could be regarded
as issuer within the 2020 SCF FSA Regulation. The regulation only
says that the issuer shall be an Indonesian business entity, and the
issuer may be in any legal or non-legal form. By “legal entity” means
in the form of LLC or cooperation and by “non-legal entity” means
commanditaire vennootschap (CV), firm, or partnership, both can be
issuers of securities and participate in securities crowdfunding. Even
more, as it has not been clearly regulated, it shall be possible for a sole
proprietorship to be an issuer.

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Speaking of the issuers’ business entity, it might also cover the newly
recognized one-man company formed under the Indonesian Law
Number 11 Year 2020 concerning job creation law, which substituted
some regulations including Law Number 40 Year 2007 concerning
LLC. Under the 2007 Indonesian LLC regime, a limited company
shall be established by a minimum of 2 (two) persons, while under the
job creation law regime, it is possible to establish a limited company
by only one person under certain circumstances. This new law has
changed Indonesian perspective on company law and will most likely
influence certain aspects of law.

An interesting issue of the 2020 SCF FSA Regulation is that under its
article 4, the issuer is considered as a public company as referred in the
capital market law if: (i) the shareholders of the issuer company are
more than 300 parties; and (ii) the paid-up capital of the issuer reached
more than IDR30,000,000,000 (thirty billion rupiahs). Meanwhile,
under the 1995 Capital Market Act, article 1 point 22, a public
company is a company which has a minimum of 300 shareholders
and has a paid-up capital of IDR3,000,000,000 (three billion rupiahs)
or any number of shareholders and the paid-up capital as determined
by government regulations. To date, there has been no government
regulation substituting the definition of a public company in Indonesia.
Moreover, FSA Regulation Number 3/POJK.04/2021 concerning the
administration of activities in the capital market field that came into
force on 22 February 2021, article point 18 defines a public company
as a company which has a minimum of 300 shareholders and a paid-
up capital of IDR3,000,000,000 (three billion rupiahs) or any number
as determined by the FSA. Thus, 2020 SCF FSA Regulation provides
a different approach in determining a public company.

In carrying out crowdfunding activities, the issuer shall not be

a business entity which is directly or indirectly controlled by a
conglomeration; shall not be a public company or a subsidiary of a
public company; and shall not be a business entity with a net worth of
IDR10,000,000,000 (ten billion rupiahs) excluding land and building
for business purposes. Once an issuer is willing to participate in
crowdfunding, the issuer shall submit documents and information to
the operator which varies depending on the securities issued by the
issuer.

In summary, the following Table 1 shows a comparative analysis

between the law of ECF in Malaysia and Indonesia.

49
50
Table 1

Law of ECF in Capital Markets – Malaysia vs Indonesia

Country Governance Process & Investor Issuer Penalty Compensation

Procedures
Malaysia *Securities *Trading in a *Sophisticated *Private *Directive. *Restitution.
Commission is the recognized market. – unlimited companies and *Penalty -< *Compensation.
main regulator. *RMO must be investments. limited liability RM500,000.
*Companies established in *Angel – partnership. *Reprimand.
Commission. Malaysia. maximum *Raise/Collection *Refusal to accept
*Recognized *Issuer must be RM500,000 limit <RM10 submission.
market operator. registered under within a 12-month million. *Moratorium or,
*Issuers. the Companies Act period. Prohibition of trading
*Investors. 2026. *Retail – (promoter or director).
*Sanctions for RM5,000 per * Issuance of public
unregistered issuer with a statement or,
issuers/RMO. total amount *Retention of office
*Registered of RM50,000 (promoter or director).
electronic facility within a 12-month
*Each entity has its period.
own responsibilities
according to the
Journal of International Studies , Vol. 18, 2022, pp: 31–62

law.

(continued)
 Country Governance Process & Investor Issuer Penalty Compensation
Procedures
Indonesia *The term is altered *The process begins *Investor could be *Issuers are *Administrative *Compensation
to SCF rather than with an initial individual or legal business entities, sanction.
ECF. securities offering. entity. both legal entities *The forms of
*Financial Services *The Operator *Investor with or other kinds of sanctions are: “(a)
Authority is the shall be a limited less than IDR500 business entities written warning;
main regulator of liability company million income (which enables (b) penalty or, an
ECF/SCF. (Law 40/2007) or, may buy a non-legal entities obligation to pay an
cooperation (Law maximum of to be issuers). amount of money; (c)
No. 25/1992). 5% of securities *Issuer shall not limitation of business
*The securities from their yearly be a business activity; (d) freezing of
offered are equity- income. entity controlled business activity; (e)
based securities, *Investor with by conglomerate, revocation of business
debt-based more than IDR500 shall not be a license; (f) annulment
securities, and million income public company, or of business approval;
sukuk. may buy a a business entity and/or (g) annulment of
maximum of 10% with a net asset of business registration.”
of securities from more than IDR10
their yearly income billion.
*The restriction is
invalid for the legal
entity investor or
the experienced
Journal of International Studies , Vol. 18, 2022, pp: 31–62

investor in a capital
market.

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Based on the above discussion, it shows that the law is different

between the two jurisdictions in terms of governance, process and
procedures, types of investors, issuers, penalties and compensation.

Changes to Law and Regulations to Acclimatize to the Covid-19

Pandemic in Malaysia and Indonesia: Prospects and Challenges

The COVID-19 outbreak in ASEAN, has led to uncertainty in many

economic sectors. The pandemic also triggered rapid capital outflows,
leading to a fall in markets and a rapid decline in exchange rates
across the region. Indonesia, the Philippines, Thailand and Viet Nam
showed a quarter of their stock market value written off. The largest
decline was in Viet Nam, where the index fell by 29.3 percent from
936.6 at the end of January to 662.5 at the end of March 2020. While
in Malaysia by comparison, the decline was relatively limited to 11.8
percent (from 1513.1 at the end of January to 1350.9 at the end of
March 2020). Additionally, there was also a drop in major currencies
in the region, particularly the Thai baht, Indonesian rupiah (IDR) and
Singapore dollar. The IDR experienced a significant depreciation,
increasing from IDR13,662 per USD at the end of January to
IDR16,367 at the end of March 2020, an increase of 19.8 percent
(ASEAN Policy Brief, 2020).

In the United States, the Securities and Exchange Commission

granted leeway to small businesses that had difficulty doing business
during the COVID-19 pandemic. It was a temporary conditional
relief to small businesses that had to meet their immediate financing
needs through crowdfunding rules offer. This flexibility expedited
the bidding process for eligible companies by providing exemption
from certain rules regarding company bidding times and required
financial statements. Through interim rules, a company in the United
States was required to meet enhanced eligibility requirements. Next
the company had to provide clear and tangible disclosure to investors
about its reliance on the release. Enforcement of this exemption was
applicable between the effective date of the interim regulation and 31
August 2020 (Securities and Exchange Commission, 2020).

In Malaysia, in view of the new norms, the digital economy has played
a significant role. These new norms involve the public and private
sectors as well as citizens who conduct activities and transactions
that adopt and innovate digital technologies and services. It is closely

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linked to the socio-economic function of increasing wealth creation,

productivity and good quality of life (Malaysia Digital Economy
Corporation [MDEC], 2021).

MDEC, a government agency has been aggressively pushing for small

businesses and startups to take up alternative funding such as peer-to-
peer (P2P) including equity crowdfunding campaigns to raise funds.
Currently, the ECF business has managed to generate RM587 million
collectively by over 1,600 SMEs. This involves a total of 21 ECF
and P2P platforms registered with the SC. The local fintech industry
is growing rapidly such as ECF and P2P financing as well as various
fintech players including digital investment managers, digital asset
exchange and real estate crowdfunding operators that are alternative
markets in this era of new norms. According to Datuk Syed Zaid
Albar, Chairman of the SC, the platform is growing rapidly to serve
several MSME sectors including high technology, education, retail,
F&B and consumer products. This alternative business platform
has succeeded in attracting many new investors especially young
investors aged 35 years and below (Securities Commission, 2019).
The Malaysian Mutual Investment Fund (MyCIF) was launched by
the Malaysian government with an allocation of RM50 million. The
fund aims to help fund start -ups and SMEs by co-investing on a one
to four basis in campaigns listed on ECF and P2P platforms. Further,
to boost social enterprise fundraising through P2P financing platforms
another RM10 million was allocated to MyCIF under Budget 2020.

Consequently, in response to the pandemic, the SC of Malaysia

further increased the fundraising of ECF limit to RM10 million from
the initial RM5 million limit in April 2020. The move was to boost
the interest of micro, small and medium enterprises to take advantage
of alternative fundraising channels. These changes to enable ECF
schemes and peer financing (P2P) to operate secondary trading were
immediately effected. Furthermore, the Malaysian Mutual Investment
Fund, which is administered by the SC, provided additional liquidity
into alternative fundraising spaces. The initiative increased its funding
match ratio from 1: 4 to 1: 2 for ECF and P2P campaigns. This was due
to high demand from industries to accelerate digital transformation.
In addition, it increased diversification in offering online products and
services to investors. The aforementioned agenda was seen by the SC
to add a significant surge in newly opened online trading accounts.
(SC, 2020).

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During the presentation of Budget 2021, the Malaysian Minister of

Finance announced that tax incentives for investment in ECF would
be provided. Income tax exemption on aggregate income equivalent
to 50 percent of total investments are granted to individual investors
who trade through the ECF platform registered with the SC. The
tax exemption is limited to RM50,000 for each year of assessment
amount. Further, the deductible amount is limited to 10 percent of the
aggregate income for that year of assessment with other conditions
to be met. The exemption is applicable to investments made from 1
January 2021 to 31 December 2023 (Ministry of Finance, 2020).

In terms of the prospect of ECF business during the pandemic, it

was reported by the SC (SC Annual Report, 2020) that in 2020, the
increase in total capital raised through ECF in Malaysia was 457
percent to RM127.73 million as compared to the capital raised in 2019
which only totalled RM22.92 million. 78 issuers had successfully
raised funds through 80 campaigns in 2019 with two issuers raising
funds twice a year. The SC stated that the majority of issuers were
based in Kuala Lumpur or Selangor and 60 percent were technology-
focused publishers. In 2020, the total fundraising was even greater
with 84 percent of campaigns earning more than RM500,000. A total
of RM199.23 million has been raised by ECF since 2016, as well as
benefiting 150 issuers through 159 successful campaigns. In 2020, the
top three sectors in terms of total capital raised were other services
activities with RM38.88 million or 31 percent of total capital raised.
The professional, scientific and technical activities sectors netted
RM19.96 million (16%), while information and communication
earned RM18.27 million (14%) (SC Annual Report, 2020).

Recently, to elevate ECF businesses, amendments to Schedules 6 and

7 of the CMSA 2007 were implemented on July 1, 2021. This has
expanded sophisticated investors, including, among others, individuals
with investments of RM1 million in capital market products, either
individually or through joint accounts with their spouses; chief
executive officers and directors of persons licensed or registered
under CMSA 2007; and companies that manage their related company
funds with assets in excess of RM10 million. This effort will enable
issuers to take advantage of a larger pool of sophisticated investors
and encourage many investors to grow their investment options.

Additionally, the amendments to Tables 6 and 7 has authorized Bursa

Malaysia to conduct the registration of the ACE Market prospectus
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with effect from 1 January 2022. Therefore, Bursa Malaysia has

become a one-stop center for all approvals in relation to ACE Market
listings.

Meanwhile, Schedule 5 of the CMSA has been amended to do away

with SC approval on certain corporate proposals which include the
following: “(a) initial exchange offering of digital assets through a
recognized market operator; and (b) an initial public offering (IPO) or
cross-listing of shares of a public company or listed corporation on a
stock exchange outside Malaysia.”

The Capital Markets and Services (Amendment) Regulations 2021,

came into force on 1 July 2021 and inserted Schedule 3 [Paragraph
8(1)(b)] in relation to fees in respect of a recognized market operator
as shown in Table 2.

Table 2

Fees in Respect of a Recognized Market Operator

No Activity Fees
General trading
1 Application for registration as a RM5,000.00
recognized market operator under
subsection 34(1) of the Act.
2. Annual fees payable by a recognized RM50,000.00 payable on
market operator. a date determined by the
Commission Fund-raising
Exercise.
3. Fees in respect of fund-raising RM20,000.00+0.05% of the
exercise through an initial exchange total amount to be raised.
offering.
4. Fees in respect of fund-raising 0.05% of the total amount
exercise other than an initial raised or financed through the
exchange offering. platform during the year.
5. Lodgement of white paper. RM500.00
6. Fees in respect of trading of 0.01% of the total amount of
securities or derivatives in a sale and purchase of securities
recognized market. or derivatives transactions
effected on the platform
operated by the recognized
market operator for that year.

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After the issuance of the SCF 2020 FSA Regulation, the development
of ECF is expected to increase in Indonesia. Substitution of the
crowdfunding object which was previously limited to “shares” of
the LLC to “securities” in a broader sense, could lead to more actors
participating as issuers. In order to survive during COVID-19, a huge
number of people viewed SCF as an alternative funding to grow their
business, as the main target of SCF are start-up companies and the
SMEs. Besides, the requirements of “issuer” from only available to
LLCs has been extended to any legal or non-legal form of business
entity. In this regard, issuer business entity of non-LLC can issue
securities other than “shares” to investors such as debt-based securities
or sukuk.

The demographic bonus in Indonesia would also constitute an

opportunity to the development of SCF in Indonesia. The Indonesian
Ministry of National Development Planning asserted that between
2030 and 2040, Indonesia will undergo a demographic bonus as
the productive-age population (15–64 years) will become a larger
number than those who are in the non-productive age. Nevertheless,
this particular period also represents another challenge to Indonesia in
terms of related skills and education of its manpower (Afandi, 2017).
The more skilled and educated its productive population, the more
developed Indonesia will become, including the development of ECF
as an alternative financial services in Indonesia.

Besides, the rapid development of technology and innovation leading

to rapid growth in financial technology will also create prospects as
well as challenges to ECF in Indonesia. On the one hand, the use
of technology has increased tremendously since the pandemic,
especially among students, the younger generation as compared to
the older generation. Eventually, the society will come to grips with
current technological developments such as the internet, social media,
blockchain, financial services, including SCF. By then some could
become investors and also participate as company issuers. On the
other hand, responding to the swift developments in technology has
not been easy for the government. As a civil law country that should
have a written legal basis for certain activities, regulation is somewhat
lagging behind in comparison to developments in business and
technology. Furthermore, the lack of cyberlaws, data protection and
privacy laws pose a huge challenge for Indonesia in terms of criminal
action and legal violation of rights to privacy. Besides that, business

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risks could also constitute a challenge. The most important aspect of

financial services is societal trust. Business risks play a huge role in
determining the trust of society. The risk of default, losses, breach
of fiduciary duty, non-performing loans, liquidity, cyber-attacks are
among some of the business risks that could influence society’s trust
in crowdfunding services.

Another issue of concern is the existence of cybercrimes in internet-

based transactions and whether the law or the enforcement authority,
SC or OJK are competent to combat cybercrime in relation to ECF. In
an ECF business, issuers can choose to sell a share of their company
to investors. Thus, some investors who are also part of this ownership,
expect to have a say and want to participate in the management of the
business. This is an added value to a team seeking expert guidance
and advice. However, this action can disrupt direction if it takes
the business in a different direction than what the original owner
intended. Next, crowdfunding is not immune to fraud (Sadzius, 2001).
Scammers are always looking for opportunities to deceive the public
on the internet. Fake sites always appear on the internet by copying
legitimate websites and funds are diverted to scammers especially
charity organizations and ECF sectors. The question arises whether the
offences as stated in the CMSA 2007 (section 175 – 181 and section
188) and the ECF FSA Regulations to stop the modus operandi used
by scammers to manipulate the stock markets are adequate? These are
some of the common challenges faced by regulators in Malaysia and
Indonesia.

RECOMMENDATION AND CONCLUSION

The industry of ECF in Indonesia is expected to grow larger after

the substitution of the ECF FSA Regulation by the FSA Regulation
Number 57/POJK.04/2020 concerning securities crowdfunding.
The new 2020 SCF FSA Regulation covers business entities other
than LLCs to participate in the SCF as the issuer. Furthermore, the
new regulation covers securities other than “shares/stocks” of LLCs.
It shall be a basis for future-prospects in the growth of SCF and in
supporting SMEs in Indonesia. The demographic bonus in Indonesia,
the prevalence of SMEs and start-up companies, and the massive use
of technology represent opportunities to execute SCF activities in
Indonesia.
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Nevertheless, inconsistent regulations could constitute challenges

to its implementation. Even though, the lex superior derogat legi
inferior principle may take place to settle problems, certainty and
consistency in regulations constitute a better regulatory basis.
The rapid development of technology and innovation, the lack of
a legal basis in data protection in Indonesia, and business risks in
the implementation of SCF, especially for debt-based securities and
sukuk could pose challenges to the implementation of ECF or SCF in
Indonesia. In this regard, the government could consider amending
the capital market act and issuance of the data protection act.

In the case of Malaysia, the findings of the study indicated that a

breach in any of the provision in the GRM 2020 related to ECF will
amount to several actions as prescribed in section 354 and 356 of the
CMSA 2007. These two sections is under the Administrative and Civil
Actions Part XI. In the GRM 2020 there is no provisions which describe
the offences of cybercrimes despite ECF trading being conducted
on internet platforms. Although, there are provisions in the CMSA
2007, Part V concerning market misconduct and prohibited conduct,
these provisions are applicable to approved markets where business
entities are public companies. Whether recognized markets such as
ECF markets where only locally incorporated private companies and
limited liability partnerships (excluding exempt private companies)
are allowed to be hosted on the ECF platform, is not covered in Part
V of the CMSA 2007.

In conclusion, this Covid 19 pandemic has provided a significant boost

to digitization in general and digital business models in particular. This
is evident in emerging flexible companies, which can switch quickly
to new markets and products, to gain advantage over specialized
high-volume manufacturers when there is a need to respond to
exogenous shocks such as an epidemic. The economic benefits that
conventionally mandated efforts to pursue economies of scale and the
transition to a low-wage nation are now being reconsidered. Thus,
in response to changes in the business world, the existence of laws
governing the ECF in both countries is seen as a proactive agenda by
both governments. Although, in the current situation both countries
impose registration requirements on issuers and RMOs in the host
country, this will not prevent foreign companies from investing in
ECF by complying with the laws of the host country.

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ACKNOWLEDGMENT

The authors would like to express their gratitude to Universiti Utara

Malaysia and Universitas Ahmad Dahlan Indonesia for awarding the
research matching grant (2020–2021).

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