Crowd Funding in Australia

Crowd funding’ involves the use of an online platofrm via the internet and social media to raise funds from a large number of individuals for a specific project or business idea.

Traditionally projects financed on crowd funding platforms were artistic or community iniciatives, however, entrepreneurs have recognised possibilities to sidestep traditional bank lending and venture capital, and use crowd fudning to raise funds for profit-making initiatives.

This situation creates one more frontier of confrontation between the borderless Internet and traditional regulation. It can  be  seen  as  one  part  of  the  broader  phenomenon of  financial  technology innovations.

 Crowdfunding has been acknowledged as a source of finance, especially for start ups, in a number of developed markets but in Australia existing regulatory frameworks is still being applied to crowdfunding models.

Internationally, there are several key crowdfunding models currently in the marketplace, donation-based crowdfunding, debt-based crowdfunding, where donations are made by way of a loan repayable with interest, equity-based crowdfunding, where donations are made in return for a share in the equity of the promoter; and other.  It is estimated that internationally crowd funding platoforms raised billions of dollars during the year 2015-16. The great many crowd funding platforms developed in Australia too.

Australian Position

In 2012, the Australian Investments and Securities Commission issued guidance on the legal implications of crowdfunding stating that crowd funding is not specifically regulated under Australian law, however, in many circumstances it may be within the heavily regulated area of financial services and involve manadatory provisions of regimes related to financial services licensing and disclosure, advertising financial products, fundraising disclosure regimes, and managed investment schemes.

Australia’s Corporations and Markets Advisory Committee released its report on crowd-sourced equity funding in May 2014 recommending that a specific regulatory regime be established in Australia. In response to the CAMAC report, the federal Government introduced the Corporations Amendment (Crowd-sourced Funding) Bill 2015 on 3 December 2015 with provisions that crowdfunding be available to unlisted public companies with less than $5 million in assets and less than $5 million in annual turnover; there is an “investor cap” of $10,000 per investor over a 12-month period, the exemption of public companies from some reporting and governance requirements for a five-year period; and the protection of investors with a five-day cooling-off period during which they can reclaim their investment. The Bill passed the lower house this year. A Senate committee recently released its findings on the bill, recommending it should be passed. However, the bill faced heavy criticism, and Labor senators released a dissenting report. One of the major concerns was said that the proposed legislation would block access to social businesses because  only unlisted public companies were eligible for crowd-sourced equity funding. The Business Council for Co-operatives and Mutuals submitted the bill did “not serve the capital needs of small or start up enterprises, particularly co-operative or social enterprise models” because it imposed “unwarranted regulatory imposts on the disclosure regime for the offer of securities by co-operatives governed by state and territory laws”.

The Crowdfunding Bill has now lapsed given the dissolution of the federal Government announced on 9 May 2016.

International Position

In contrast, in the US, The Jumpstart Our Business Startups Act or JOBS Act was signed into law by President Barack Obama on April 5, 2012 and is a law intended to encourage funding of United States small businesses by easing various securities regulations. By this Act persons seeking crowd funding are exempt from the US requirement to provide prospectus-level disclosure, provided that the total value of shares issued is not more than $1 million. There are also restrictions in place  on the amounts that individual contributors can contribute towards crowd funded projects, depending on their income or net worth. When crowd funding platforms register as "funding portals" with the US Securities and Exchange Commission (SEC), them and their promoters are subject to a lighter disclosure regime.

On 3 May 2016 EU issued a working document on crowd funding stating that in the EU there has been over 500 crowd funding platforms and it is  estimated that EUR 4.2 billion were successfully raised through crowdfunding platforms in 2015 across the EU, of  which  EUR 4.1 billion were raised through  crowdfunding  models  entailing  a  financial  return. Seven EU  Member  States  have  introduced regulatory   frameworks  for crowdfunding   activities,   with   requirements for issuers/borrowers,  platforms  and  investors/lenders. In  addition,  a  number  of  Member  States are  either  preparing  or  planning  to  introduce  a  regime.

Crowdfunding is a young industry in China, as it only appeared in 2011 with the creation of the platform Demohour. The industry has been growing on average year-on-year growth of about 155% in total funds raised. In the year 2014, there were more than 100 active platforms. There are no laws regulating crowd funding and there seems to be lack of trust between government, investors and enterprenours in using this source of funding, In India, crowd funding is relatively widespread with a proposed legislation maybe upcoming. It is submittd that ndia has not reached the stage where it can deal with ease with internet securities as Indian users may not be fully aware of their dangers. It is further submitted that Th it is important to have robust data securities law in India. The Central Bank of Russia has initiated a working group of market experts from several crowdfunding platforms with the intention of developing crowdfunding regulation.

Conclusion

Regulation of crowd funding involves overcoming concerns of protecting uspohisticated investors while not hindering innovation by imposing unneccessary burdens to start ups. It seems that regulations introduced in several EU countries and the US should be followed, at least in principle, and less stringent regulation for crowd funding introduced.

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