Law and Practice of Crowdfunding and Peer-to-Peer Lending in Australia, China and Japan PDF
Preview Law and Practice of Crowdfunding and Peer-to-Peer Lending in Australia, China and Japan
Pelma Rajapakse Yinxu Huang Hatsuru Morita Law and Practice of Crowdfunding and Peer-to- Peer Lending in Australia, China and Japan Law and Practice of Crowdfunding and Peer-to- Peer Lending in Australia, China and Japan Pelma Rajapakse • Yinxu Huang Hatsuru Morita Law and Practice of Crowdfunding and Peer-to-Peer Lending in Australia, China and Japan Pelma Rajapakse Yinxu Huang Senior Lecturer in Business and Postdoctoral Fellow, Corporations Law (Adjunct), Department of School of Interdisciplinary Studies Accounting, Finance, and Economics Renmin University of China Griffith University Beijing, China Nathan, QLD, Australia Hatsuru Morita Professor of Law, School of Law Tohoku University Sendai, Miyagi, Japan With Contributions from Shanuka Senarath Chenliang Hou Senior Lecturer, Department of Economics Ph.D in Economic Law Candidate University of Colombo Renmin Law School Colombo, Sri Lanka Renmin University of China Beijing, China ISBN 978-981-19-3833-7 ISBN 978-981-19-3834-4 (eBook) https://doi.org/10.1007/978-981-19-3834-4 © Springer Nature Singapore Pte Ltd. 2022 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Foreword A high-powered group of experts has come together to provide an outstanding book on crowdfunding and peer-to-peer lending in Australia, China, and Japan. These countries have developed many practices and laws on crowdfunding and peer-to- peer lending that the world can learn from. This book includes a systematic intro- duction to Chinese, Australian, and Japanese law, as well as a review of related practices. The authors examine the legal and regulatory systems of these three coun- tries, and there are many innovative and abstract interpretations of the formation of the laws and practices of the three countries, and they also give theoretical and practical suggestions for improvement. I started my first research on crowdfunding and P2P lending in 2012. I studied in Japan for many years and eventually got my doctorate degree from Hitotsubashi University. Before the pandemic, I used to lead teams of Chinese experts and my students to Japan, Australia, Thailand, the United Kingdom, and the United States to investigate, with the experts of BoJ, BoE, RBA, FCA, ASIC, FSA, and so on, and to discuss FinTech issues such as crowdfunding and P2P lending. The content expressed in the book answers some of the most important concerns of experts from various countries. I am also pleased to see that in addition to crowdfunding and P2P lending, the book focuses on laws and practices related to digital currencies, espe- cially those related to central bank digital currencies, which is very meaningful and forward-looking. In the field of digital currency theory, I propose the Coken Theory (Coken is my special understanding of tokens, which can be seen in my book Blockchain and Coken Economics: A New Economic Era, 2019). I hope that more international research institutions will work together to promote digital currency research. Overall, the theory and practical lessons of this book should be compul- sory reading by academics, industry participants, and policy makers. I highly rec- ommend this book. Professor of Law, School of Law, Dong Yang Dean of the Interdisciplinary Studies School, Renmin University of China Beijing, China v Foreword Law and Practice of Crowdfunding and Peer-to-Peer Lending in Australia, China and Japan is a timely publication as FinTech grew up and moved into the main- stream of finance in the last decade. Financial services is a highly regulated industry as it is the lifeblood of a modern economy. Pelma Rajapakse, Hatsuru Morita, and Yinxu Huang have done very solid work, blazing a new trail in what is a new indus- try and how to regulate it properly instead of stifling innovation. They have carried out a deep exploration and a thorough compilation of research that will bring every- one up to date on what Australia, China, and Japan are planning and doing in the field of crowdfunding and peer-to-peer lending. The selected countries are well rep- resented as they are leading the FinTech market both regionally and globally. The authors presented their thoughts with such clarity that even those who lack familiar- ity with the Asia-Pacific region will see how FinTech was growing in various ways driven by different factors. For example, peer-to-peer lending in Japan is mostly for small and medium enterprises. It has been replaced by other FinTech in China. It provides an alternative fundraising channel for the capital market in Australia. We also see a set of regulatory approaches among jurisdictions. Some countries draft new regulations, while others amend existing laws. The mechanism of the regula- tory sandbox was introduced. As we know, one size does not fit all. What kind of best practices or lessons learned can we apply to our own jurisdiction? This book covers all available answers to date. This volume speaks highly of the quality and foresight of Pelma Rajapakse and her co-authors. Assistant Dean, Faculty Director of Global Hung-Yi Chen Executive Education, International Business School, Zhejiang University Zhejiang, China vii Preface The revolution in financial technology (FinTech) has created many advancements to the lending and investment space across the world. As a result, companies, and start- up businesses, can raise capital through online portals to finance their activities. Crowdsourced funding is the practice of using the Internet to elicit funds for the creation or completion of a project from a ‘crowd of investors’. There are several types of crowdfunding methods, such as donation-type, purchase-type equity-type, and debt-based (also known as ‘marketplace lending’ or ‘peer-to-peer lending). This book focuses on these four types of crowdfunding methods as they apply to Australia, China, and Japan. The purpose of this book is to evaluate the law and practice of crowdfunding and peer-to-peer (P2P) lending in Australia in comparison to other pioneering countries such as China and Japan. The newly developing online microfinancing industry will be evaluated considering its regulatory landscape, market position, the participants of crowdfunding and P2P lending, and the potential challenges it faces. The Chinese and Japanese crowdfunding and P2P lending businesses are sophisticated profitable businesses. The book aims to identify the challenges facing these businesses and determine if these challenges can be overcome in Australia. This book will also provide meaningful regulatory and practical options for aca- demics, practitioners, industry participants, and governmental agencies to protect consumers and to allow the growth of this industry. Identifying reforms in a newly developing market is paramount for the very existence of such a market. There is a dearth of both academic and practical literature on the legal and regu- latory issues surrounding marketplace lending programs in Australia, as compared with overseas jurisdictions such as the United States and the United Kingdom. Moreover, the descriptions of crowdfunding programs overseas do not always accord with the way in which marketplace lending programs are structured in Australia in practice. This study seeks to redress that imbalance. This book contains three main parts to help you understand the topic: Part I, Part II, and Part III discuss the law and practice of crowdfunding and P2P lending in Australia, China, and Japan respectively. ix x Preface Chapter 1 of this book provides an overview of the development in marketplace lending in Australia and internationally, specifically how the P2P lending financing model works in each jurisdiction and how various factors have influenced their development. Chapter 2 examines who are the principal participants of crowdfund- ing and P2P lending in Australia. Further, this chapter analyses and compares the offerings of marketplace lenders to those of the traditional banks. The potential advantages and disadvantages of these offerings compared to the traditional banks are also analysed. Chapter 3 investigates the principal challenges in such business models. Challenges to be considered, but not limited to, would be regulatory, tech- nology, innovation, and marketing. This chapter also explores the challenges crowd- funding and P2P lending may pose to traditional intermediation. In Chap. 4, we examine the development of cryptocurrency such as Bitcoins and Initial Coin Offerings (ICOs) in the Australian and international context with special reference to regulatory response by the Australian legislator to the new developments in the digital-finance world. The final chapter of Part I, Chap. 5, investigates possible reg- ulatory options and policy reforms for crowdfunding and P2P lending in Australia, importantly, helping to answer the question of can P2P lending and crowdfunding regulation occur successfully in Australia. To answer this question, the UK and US P2P lending and crowdfunding regulatory systems will also be examined. Chapter 6 provides an overview of the development of crowdfunding and peer- to- peer lending in China, including how the financing model works in China and how various factors have influenced their development. Chapter 7 provides an over- view of the development of virtual currencies, ICOs, and Central Bank Digital Currencies (CBDC) in China. This chapter attempts to answer why China is almost banning virtual currencies, and the prospects for CBDC in China. Chapter 8 will analyse how China applies RegTech to regulation. Practice shows that RegTech is the right way to build a new model and dimension of financial supervision; over- come the existing problems such as supervision failure, excessive supervision, and supervision loopholes; and solve the problem of government supervision capacity- building at the same time. Chapter 9 provides the development of crowdfunding and peer-to-peer lending in Japan. The low bank deposit interest rate during the depression of the Japanese economy and the 2011 Great East Japan Earthquake have driven the rapid growth of these new financing technologies. Chapter 10 describes the regulation of crowd- funding and peer-to-peer lending in Japan. Peer-to-peer lending in Japan adopts a peculiar structure, which is different from other jurisdictions. This unique develop- ment of peer-to-peer lending in Japan is caused by the unique regulatory condition in Japan. We will see various financial scandals, which were caused by the defects of the financial regulation, and the changes of the regulation in Japan. Chapter 11 discusses the regulation of virtual currencies in Japan. The virtual currency exchanges industry in Japan has also experienced repeated scandals. We will see how the Japanese government has tried to modify the regulation in responding to the rapid growth of the virtual currency market and its repeated scandals. Finally, Chap. 12 provides a comparative analysis of the regulatory modes and concepts of crowd- funding, P2P, and FinTech in Australia, China, and Japan, in order to find the unique Preface xi advantages and common characteristics of the regulatory modes of these three countries. In this book, we have sought to state the law as at the end of November 2021. Nathan, QLD, Australia Pelma Rajapakse Beijing, China Yinxu Huang Sendai, Japan Hatsuru Morita Acknowledgements We would like to acknowledge our gratitude to Dr Shanuka Senarath for writing Chap. 4, proofreading, and editing several chapters. We also appreciate the contri- bution provided by Mr. Chenliang Hou for writing Chaps. 8 and 12 of the book. We could not have completed this book without the support and dedication from the editorial team at Springer Nature, Mr. William Achauer, Ms. Lucie Bartonek, Ms. Ella Zhang, the project coordinator Ms. Deepthi Vasudevan and the project manager Ms. Sudha Elite at Straive Co. Ltd. Dr Pelma Rajapakse gratefully acknowledges the research grant offered by the Law Futures Centre, Griffith University, for this project. The research assistance provided by Ms. Nothando Malaba, senior associate in the corporate practice of Hogan Lovells International LLP in London, is greatly appreciated. Pelma thanks her husband Suri and children Shehan and Sharlene for their encouragement and support during the time spent working on this book. Dr. Yinxu Huang appreciates the guidance provided by Dr Dong Yang, professor at Renmin Law School, China. He thanks his wife, Zhu Yang, for her encouragement. Professor Morita presented some chapters of Part III at conferences and seminars and benefitted from many helpful comments from the participants. He is also supported by a grant-in-aid from the Japan Society for the Promotion of Science. xiii
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