A new capital-raising method known as crowdfunding is a good idea, but it needs more restrictions to ensure that investors are protected, a U.S. securities regulator said on Wednesday.
The U.S. Securities and Exchange Commission and Congress are reviewing potential regulatory changes to promote small companies' access to capital.
Among them is crowdfunding, a new capital-raising technique in which investors take small stakes in companies through the Internet.
I personally think crowdfunding is a pretty good idea, but within limits, said Elisse Walter, a Democratic commissioner at the SEC, during a Practising Law Institute event in New York. If it is too big, it will become a haven for fraud and it will backfire.
Earlier this month, the House of Representatives passed a measure to permit crowdfunding by allowing companies to raise up to $2 million annually from investors pledging no more than $10,000 or 10 percent of their annual income.
The SEC has been conducting a review into whether it needs to update regulations. Crowdfunding is one area that it has been focusing on.
Congress should avoid being too prescriptive with any legislation that mandates changes to the securities laws, Walter said. Congress should stick to higher-level policy decisions and leave the details to the SEC, she said.