Asset management quarterly - Australia

ASIC releases guidance on crowd-sourced funding intermediary licencing

Author: Zein el Hassan

The ASIC has announced a new crowd-sourced funding regime.

It is an exciting time for Australian equity market participants with a new crowd-sourced funding (CSF) regime due to commence on 29 September 2017.  CSF, in essence, involves raising funds, usually through an online intermediary, from a large number of people who each make relatively small financial contributions. Australia’s new regime, introduced in Pt 6D.3A of the Corporations Act 2001 (Cth), provides a regulatory framework to enable CSF. Initially the CSF regime will only be available for small to medium unlisted public companies, however, earlier this month the Government introduced the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 (Bill). If passed, this Bill will broaden the regime to proprietary companies, allowing them to make offers of ordinary shares to retail clients. Once the full CSF regime is available, it is expected this will create a new market for equity investment in Australia.

Key requirements of the new regime are as follows:

For CSF online intermediaries For CSF public companies For CSF private companies (up passing of the Bill)
Currently hold an Australian Financial Services Licence and authorisation from ASIC to operate as an intermediary under the regime. Must be unlisted public companies (excluding investment companies) with their principal place of business and majority of directors in Australia and with less than AU$25 million in assets and revenue. Additional regulatory obligation to prepare an annual financial report and directors’ report if there are any CSF shareholders.
Comply with gatekeeper obligations (including performing checks on the offering company, the CSF offer, and monitoring compliance in relation to CSF offer documents issued to potential investors). If the company raises AU$3 million or more through CSF offers an annual independent audit will be required.
Have in place adequate risk management, dispute resolution and client money handling resources.

The CSF offer document:

  • must be for fully-paid ordinary shares;
  • cannot be used to raise funds for investment in other companies or loans to related parties;
  • cannot exceed $5 million in equity across any 12 month period; and
  • the CSF offer document must include the minimum prescribed information for potential investors.

Importantly, the CSF process must be facilitated through a licensed intermediary’s online platform. The intermediary is required to hold an Australian Financial Services Licence and specific authorisation by ASIC. Applications to become a CSF online intermediary open on 29 September 2017. To assist with this process ASIC has released two Regulatory Guides. The first of these, Regulatory Guide 261: Crowd-sourced funding: Guide for public companies, includes draft form CSF offer documents. The second of these, Regulatory Guide 262: Crowd-sourced funding: Guide for intermediaries, is aimed at assisting prospective intermediaries with the application process, as well as providing guidance on how to comply with specific regulatory obligations under the CSF regime (some of these are summarised in the table above). It is expected that upon passing of the Bill another regulatory guide will be issued.

The first round of applications for potential intermediaries will be considered between 29 September and 27 October 2017.  


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