Crowd-sourced funding (CSF) is an emerging form of funding that allows entrepreneurs to raise funds from a large number of investors. It has the potential to provide finance for innovative business ideas and additional investment opportunities for retail investors, while ensuring investors continue to have sufficient information to make informed investment decisions.
The Government released its draft framework for consultation today.
The Bill will remove regulatory barriers to CSF, and will make available a new funding source for businesses. It is expected that the overall ‘per business’ compliance costs for issuers that participate in crowd-sourced funding will decline. However, given the likely growth in the number of businesses raising funds through these arrangements, the aggregate compliance burden over the economy is expected to increase.
A number of recent reviews have identified the potential of CSF to provide new and innovative businesses with access to the finance they need to develop their product or service and grow.
- The Government’s Industry Innovation and Competitiveness Agenda, released in October 2014, called for consultation on a regulatory framework for CSEF.
- The Murray Inquiry into Australia’s financial system, released by the Government in December 2014, specifically recommended reducing regulatory impediments to crowdfunding by introducing graduated fundraising regulation. In its response to the Inquiry, released in October 2015, the Government accepted this recommendation.
- The Productivity Commission’s Business Set-up, Transfer and Closure draft report, released in May 2015, also supported the introduction of a CSEF framework.
Earlier in December, Minister for Small Business and Assistant Treasurer the Hon Kelly O’Dwyer said
“Today’s announcement is a key priority of the Turnbull Government’s National Innovation and Science Agenda”.
“CSEF or crowd funding is an emerging way for start-ups and early stage businesses to access the funding and investors they need, while maintaining adequate protections for retail investors who share in the risks and successes of these businesses.
“Following extensive consultation, the legislation will allow unlisted public companies with less than $5 million in assets and less than $5 million in annual turnover to raise up to $5 million in funds in any 12 month period.
“Companies that become an unlisted company in order to access crowd-sourced equity funding will receive a holiday of up to five years from some reporting and governance requirements.
“The Turnbull Government recognises the need to allow investors to make informed decisions and companies raising funds through crowd funding will be required to release an offer document.
“While investors will be able to invest an unlimited sum in crowdfunding, there will be a cap of $10,000 per issuer per 12-month period to ensure that mum and dad investors are not exposed to excessive risks.
“Australia’s CSEF model is competitive globally with the issuer cap of $5 million each year higher than the US and New Zealand cap, and the investor cap of $10,000 per issuance higher than the average in New Zealand and the UK.
“Intermediaries will play an important gatekeeper role and will need to conduct checks on companies before listing their offer. Intermediaries will be required to hold an Australian Financial Services Licence, providing issuers and investors with confidence in the integrity of the intermediary.
“Ongoing responsibility for issuing licenses for intermediaries and monitoring the operation of the crowd-sourced equity funding framework will sit with ASIC.
“Regulations to support the framework for crowd-sourced equity funding will be released for consultation shortly. The Government will also consult on options to facilitate crowd-sourced debt funding in 2016,”
Closing date for submissions: Friday, 29 January 2016.
