We made a submission on the Australian Treasury’s Discussion Paper on Crowd-Sourced Equity Funding (otherwise known as equity crowdfunding or crowdinvesting). This drew upon the wisdom of the experts at our first two events.
We made 12 recommendations, which we have reproduced below.
INITIATE’s 12 Recommendations on CSEF in Australia
1: Drawing on the information obtained from this round of consultation, Treasury should develop a regulatory risk profile of the sector that takes into account both the risks and the means by which these can be managed. This should quantify the risks the government sees and be calibrated by factual input from the industry and community.
2: Australia should tackle the issue of takeovers in its primary legislation that implements CSEF.
3: Civil Liability should be confined to general negligence with its legal tests and not unwittingly extended to breach of statutory duty, with its strict liability. This will require careful legislative drafting.
4: The regulatory regime for CSEF needs to be able to accommodate and differentiate between these two extremes (start ups and established SMEs).
5. CAMAC’s proposed exempt public company should not be pursued as a crowdfunding-specific option.
6: The minimum information for a listing must be available to investors well before an offer opens to ensure they have time to read & digest it. Platforms should have to provide all the relevant listing information at least 24 hours or even a week before an offer goes live. Ideally this should be provided in a standardised form for disclosure (as suggested by CAMAC).
7: Intermediaries/platform operators should have to fully disclose their fees. There could be a general requirement that they must be reasonable and relate to the cost of the listing. Otherwise it should be left to the market.
8: If platforms are not allowed to invest in issuers there should be an exception where the platforms are raising money for themselves through crowdfunding.
9: The risk warning should include advice that diversification is one of the best ways to manage the risk of business failure – ie don’t put all your eggs in one basket. That warning could also refer the reader to advice on the ASIC website on the desirability of making small investments in multiple companies rather than a large investment in one company.
10: If voluntary investor caps are put in place, the legislation must provide for easy amendment of any limits – eg through regulation or statutory instrument.
11: Establishing a scheme that permits a portion of investments in start ups to be deducted as income tax expenses would increase the funds available for innovation in Australia. At the same time such a scheme could be used to encourage investor behaviour that diversifies portfolios to minimise the risk of loss of investment and maximise the returns from these investments.
12: A specific industry/sector risk assessment for crowd-lending or Peer to Peer lending needs to be undertaken before preparing any framework for regulating debt products.
Download the full submission here:
Get the Australian Treasury Discussion Paper on CSEF