Law and practice of crowdfunding and peer-to-peer lending in Australia, China, and Japan

The revolution in financial technology (FinTech) has created many advancements in the lending and investment space across the world. Law and Practice of Crowdfunding and Peer-to-Peer Lending in Australia, China, and Japan is a timely publication as FinTech grows up and moved into the mainstream 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 industry 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 everyone up to date on what Australia, China, and Japan are planning and doing in the field of crowdfunding and peer-to-peer lending. In addition to peer-to-peer lending, the book focuses on laws and practices related to Central Bank digital currencies, cryptocurrency, Bitcoin, and Initial Coin Offerings (ICOs) which is very meaningful and forward-looking. The authors presented their thoughts in such clarity that, even those who lack familiarity with Asia-Pacific, 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 was popular in China but cracked down by the authorities for a few years. 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 regulatory 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. Foreword Foreword Preface Acknowledgements Abbreviations Contents List of Figures List of Tables List of Legislation About the Authors and Contributors Authors Contributors Part I: Law and Practice of Crowdfunding and P2P Lending in Australia Chapter 1: Marketplace Lending and its Development in Australia 1.1 Types of Crowdfunding and Peer-to-Peer Lending Models 1.2 Development of the Industry 1.3 P2P Lending Process 1.3.1 Application Process 1.3.2 Matching an Investor with the Borrower 1.3.3 Account Set-up and On-going Management 1.4 Operating Models 1.4.1 Managed Investment Funds Model 1.4.2 Securities Model 1.4.3 Derivatives Model 1.4.4 Financial Market Model 1.5 International Comparison 1.5.1 United Kingdom 1.5.2 United States 1.6 P2P Lending Product Lines 1.7 Interest Rate and Fees 1.7.1 Fees Chapter 2: Key Participants in Australia and Comparison of Peer-to-Peer Lenders with Traditional Banks 2.1 Key Participants in Australia 2.2 Role of the Industry 2.3 Future of P2P Lending 2.4 Advantages and Disadvantages of P2P Lending Chapter 3: Challenges for P2P Lending Business Models and Banks 3.1 Regulatory, Technological, Innovation and Marketing 3.1.1 Regulatory Challenges 3.1.2 Fraudulent Activities and P2P Lending Platforms 3.2 P2P Lending and Technology 3.3 Blockchain and P2P Lending 3.4 Secondary Market for P2P Lending 3.5 Information Asymmetry and Adverse Selection 3.6 Liquidity Risks, High Leverage, and the Need for Guarantees 3.7 Opportunities and Challenges: Future of the P2P Market Chapter 4: Development of Virtual Currency and ICOs in Australia 4.1 Digital Currency, Virtual Currency and Cryptocurrency 4.2 Digital Currencies: Risks and Opportunities 4.3 The Bitcoin 4.4 Initial Coin Offerings (ICOs) 4.4.1 Some Issues Pertaining to ICOs 4.5 Regulation of ICOs in Australia 4.6 Bitcoin and Other Cryptocurrencies in Australia: Tax Treatment 4.7 Summary Chapter 5: Regulatory and Policy Reforms in P2P Lending in Australia 5.1 Managed Investment Funds Model and P2P Lending 5.1.1 MIS Regime for P2P Lending 5.1.2 Operating Requirements 5.1.3 Disclosure Obligations 5.2 AFS Regime and P2P Lending 5.2.1 Disclosure Obligations 5.2.2 Operating Requirements 5.3 Consumer Credit Regime and P2P Lending 5.3.1 Responsible Lending Obligations 5.3.2 Disclosure Obligations 5.3.3 Operating Requirements 5.4 Securities Model and P2P Lending 5.4.1 Securities Regime 5.4.2 Disclosure Obligations 5.4.3 Operating Requirements 5.4.4 AFS Regime for Securities Issuers 5.4.5 Consumer Credit Regime for Securities Issuers 5.5 Derivates Model and P2P Lending 5.5.1 Derivatives Regime 5.5.2 Operating Requirements 5.5.3 AFS Regime for Derivatives Issue 5.5.4 Consumer Credit Regime for Derivatives Issue 5.6 Financial Market Model and P2P Lending 5.6.1 Australian Market License Regime 5.6.2 Consumer Credit Regime for Financial Market Operators 5.7 Comparative Regulatory Frameworks 5.7.1 Regulatory Approach in the United Kingdom 5.7.2 Regulatory Approach in the United States 5.7.3 Regulatory Approach in Australia for Crowd-Sourced Equity Funding 5.8 Moving Forward Part II: Law and Practice of Crowdfunding and P2P Lending in China Chapter 6: Marketplace Lending and its Development in China 6.1 Relevant Background: Perspective of History and Market 6.2 Types of Crowdfunding and Peer-to-Peer Lending Models 6.2.1 Donation-Based Crowdfunding 6.2.2 Reward-Based Crowdfunding 6.2.3 Loan-Based Crowdfunding (P2P Lending) 6.2.4 Equity-Based Crowdfunding 6.3 Scenarios of Typical Fraud by P2P Lending in China 6.3.1 Case Analysis: Ezubao 6.3.2 Analysis of Fraud Cases 6.4 Summary Chapter 7: Virtual Currencies, ICOs and Central Bank Digital Currencies in China 7.1 Virtual Currencies in China 7.1.1 The Development of Virtual Currencies in China 7.1.2 The Risks of Virtual Currencies and China’s Policies and Laws 7.2 ICOs in China 7.2.1 The Chaos Brought by ICOs in China 7.2.2 China’s Laws and Policies Prohibiting ICOs 7.2.3 STO and NFT in China 7.3 Central Bank Digital Currencies (Digital RMB) in China 7.4 Summary Chapter 8: New Financial Regulatory Mode and Regulatory Technology in China 8.1 Background: Emergence of FinTech 8.2 Challenges: Characteristics and Risks of FinTech 8.2.1 New Characteristics of FinTech 8.2.1.1 Morphological Digitisation 8.2.1.2 Service Networking 8.2.1.3 Scene Diversification 8.2.1.4 Intelligent Service 8.2.1.5 Intensive Operation 8.2.2 New Risks of FinTech 8.2.2.1 Insufficient Permeability of Financial Innovation Supervision 8.2.2.2 The Lag of Financial Innovation Supervision 8.2.2.3 Hard to Guarantee the Regulatory Consistency 8.2.2.4 High Regulatory and Compliance Costs 8.3 Response: Two-Dimensional Supervision with Chinese Characteristics 8.3.1 Chinese Style RegTech and Technology Driven Supervision 8.3.2 Regulatory Sandbox and Supervision Pilot of FinTech in China 8.3.2.1 Operation Mode of Regulatory Sandbox with Chinese Characteristics 8.3.2.2 The Pilot of Financial Science and Technology Innovation Supervision 8.3.2.3 Expansion of Regulatory Pilot Scope 8.3.3 Characteristics of Pilot Work of Financial Science and Technology Innovation Supervision 8.3.3.1 Regulatory Philosophy 8.3.3.2 Workflow 8.3.3.3 Main Features 8.4 Cases: State of RegTech Development in China 8.4.1 Digital Bill Trading Platform 8.4.2 Artificial Intelligence Anti Money Laundering Monitoring System 8.4.3 Enterprise Intelligent Supervision System 8.4.4 Bank Risk Early Warning System 8.4.5 “Smoke Index”: A Comprehensive Financial Supervision Platform 8.4.6 Know Your Business/Customer System 8.5 Optimisation: An Improvement Plan for China’s New Regulatory Model and RegTech 8.5.1 Macro Top-Level Design 8.5.2 Micro Operational Mechanism 8.5.3 Consumer Protection Mechanism 8.5.4 Data Protection Specification 8.6 Conclusion Part III: Law and Practice of Crowdfunding and P2P Lending in Japan Chapter 9: Marketplace Lending and its Development in Japan 9.1 Types of Crowdfunding and Peer-to-Peer Lending Models 9.1.1 Donation-Type Crowdfunding 9.1.2 Purchase-Type Crowdfunding 9.1.3 Loan-Type Crowdfunding (P2P Lending) 9.1.4 Equity-Type Crowdfunding 9.2 Development of Crowdfunding and P2P Lending in Japan 9.2.1 General Background 9.2.2 The Rise of Social Lending (P2P Lending) 9.2.3 From Social Lending to Purchase Type Crowdfunding 9.2.4 The Beginning of Equity-Type Crowdfunding 9.2.5 Different Popularity of Crowdfunding 9.2.6 COVID-19 and Crowdfunding Chapter 10: Regulation of Crowdfunding and P2P Lending in Japan 10.1 Regulation for Donation-Type Crowdfunding 10.2 Regulation for Purchase-Type Crowdfunding 10.3 Regulation for Loan-Type Crowdfunding/P2P Lending 10.3.1 Two Regulatory Frameworks 10.3.2 Financial Scandals and Regulatory Flaws 10.3.2.1 MINNANO CREDIT Case 10.3.2.2 Maneo Case 10.3.2.3 Self-Regulation of Industry Group 10.3.3 Civil Liability of Platform 10.3.4 Other Challenges 10.4 Regulation for Equity-Type Crowdfunding 10.4.1 Equity-Type Crowdfunding 10.4.2 The 2014 Reform 10.4.3 Self-Regulation 10.4.4 Further Deregulation 10.5 Summary: Future of Crowdfunding Business and Regulation Chapter 11: Regulatory and Policy Reforms in Japan 11.1 Bitcoin and Virtual Currency 11.1.1 Virtual Currency 11.1.2 Reform of Payment Services Act 11.1.2.1 Definition of Virtual Currencies 11.1.2.2 Regulation of Virtual Currencies 11.1.2.3 Scandals of Virtual Currency Exchanges 11.1.2.4 Hard Law or Soft Law? 11.2 Private Law Issues 11.2.1 Bankruptcy of Virtual Currency Exchanges 11.2.2 Unauthorised Access to Exchange Accounts 11.2.3 Duty of Exchanges 11.2.4 Hard Fork of Virtual Currencies 11.3 Initial Coin Offerings 11.3.1 ICO 11.3.2 ICO Regulation in Japan 11.4 Central Bank Digital Currency (CBDC) Chapter 12: Unique Features of Crowdfunding and P2P Lending Regulation in Australia, China and Japan Bibliography "FinTech (the revolution in financial technology) is growing up and moving into the mainstream of finance over the last decade. The authors explore what Australia, China, and Japan are planning and doing in the field of crowdfunding and peer-to-peer lending. In addition to peer-to-peer lending, the book focuses on laws and practices related to central bank digital currencies, cryptocurrency, Bitcoin, and Initial Coin Offerings (ICOs). For example, peer-to-peer lending in Japan is mostly for small and medium enterprises. It was popular in China but the authorities cracked down a few years. 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 regulatory sandbox was introduced"--Adapted from the publisher's description