Currently, many Australian start-ups struggle to establish themselves due to a lack of access to capital. One avenue of providing the necessary funding is crowd sourced equity funding (crowdfunding), which is typically characterised by small financial contributions made by a large number of investors.
Countries such as the United States (via the Jumpstart Our Business Start-ups Act (JOBS Act)) and New Zealand have already introduced crowdfunding legislation. Others, such as Canada are working on introducing crowdfunding legislation.
The Australian Government Corporations and Markets Advisory Committee (CAMAC) has been asked by the government to do a review into crowdfunding. In their Crowd Sourced Equity Funding Discussion Paper dated October 2013, CAMAC requested submissions on the appropriate way to regulate crowdfunding in Australia.
Norton Rose Fulbright submitted a response, which is available on the CAMAC website here.
In our view:
- A self-contained regulatory structure should be established – given the unique characteristics and regulatory challenges posed by crowdfunding, and consistent with the approach adopted in the United States in the JOBS Act, crowdfunding should be the subject of separate legislation. Amendments to the Corporations Act 2001 (Cth) should be made only to ensure there are no inconsistencies between that Act and the crowdfunding legislation.
- Crowdfunding legislation should cover all participants – crowdfunding legislation should regulate the key participants in crowdfunding, ie issuers, intermediaries and investors. It should also balance the commercial interests of issuers and intermediaries against the needs of investors.
- Crowdfunding regulation should be kept to a minimum – given the generally small amount of capital raised by issuers, and the relative inexperience of the issuers and investors, any regulation of crowdfunding should be kept to a minimum. In our view, complex regulation is likely to discourage investment which will undermine the effectiveness of crowdfunding in Australia.
We look forward to participating in future dialogue with CAMAC on crowdfunding.