From 1 April 2014 companies will be able to access equity and debt capital without compliance with typical disclosure obligations placed on issuers of securities. This is enabled by the creation of new categories of crowd funding and peer-to-peer intermediary services under the Financial Markets Conduct Act 2013 (Act).
In September last year Simpson Grierson released an FYI detailing the likely requirements that the providers of these intermediary services would need to satisfy in order to offer crowd funding and peer-to-peer lending services. To read this FYI in full, click here.
In late February the Financial Markets Conduct (Phase 1) Regulations 2014 (Regulations) were released. The Regulations broadly confirm market expectations as to the requirements. However, the Regulations do contain some developments worthy of comment. These include:
The absence of investor caps
Contrary to our expectation, the Regulations state that, aside from the $2 million restriction on the total amount that can be raised by an issuer over the course of a year, there will be no financial restrictions on the platforms. Note, in particular, that no investor will be limited in the amount he or she can invest.
Discretion around information disclosure
As expected, crowd funding and peer-to-peer lending platforms will be required to display a prescribed disclosure statement in relation to their service. However, the crowd funding platforms have been left a discretion as to how to provide disclosure to potential investors in relation to the underlying issuers, as long as any mechanisms are ‘adequate’ for the purpose of providing timely and understandable information to investors. When determining if disclosure arrangements are adequate, the Financial Markets Authority will have regard to the amount investors are permitted to invest and that issuers are allowed to raise via the platform. The Regulations go on to suggest that "initial disclosure" or Q&A forums may be appropriate but are lacking in prescriptive requirements.
Although largely free of surprises, the balance of the Regulations set out a considerable number of additional documentary obligations (such as the establishment of online investor warning statements and the receipt of investor confirmations about risks) which are to be placed upon the operators of crowd funding and peer-to-peer platforms. Although not onerous, it will be important for market participants to get a firm grasp of these requirements before platforms go live and investments are made.