Earlier this year, ASIC released two consultation papers setting out its draft regulatory guidance for both public companies seeking to raise funds through CSF offers (CP 288) and intermediaries operating CSF platforms (CP 289). As a result ASIC has reported (Report 544) on the submissions made to the consultation papers and finalised regulatory guidance for companies making CSF offers (RG 261) and CSF intermediaries (RG 262).
In light of the responses received on the consultation papers, there are some material differences between the consultation papers published by ASIC and the regulatory guidance it has released. These differences are discussed below. ASIC has also made relief instruments to exempt CSF offering companies and intermediaries from certain obligations under the Corporations Act that would otherwise apply.
ASIC’s response to Consultation Paper 288
ASIC found that respondents were generally supportive of the proposed regulatory guidance, including explanations of information that should be included in a CSF offer document to meet minimum information requirements under law, additional information which offerors should consider disclosing and the disclosure of a template CSF offer document. Key changes made to RG 261 as a result of responses to CP 288 by ASIC include:
- clarifying that regulatory guidance on proposed items to be included in the CSF offer document is not prescriptive, with the content and length of a CSF offer document to vary based on a company’s circumstances;
- permitting cross-references within CSF offer documents to prevent duplication and inclusion of annexures for additional information (ie, information not prescribed by law or less important to investors) or key documents (ie, shareholder agreements or company constitutions);
- noting that the order of four key sections in CSF offer documents is prescribed, however indicating there is flexibility around the information to be included in each section, as well as around the presentation and ordering of such information;
- tailoring guidance concerning minimum information disclosures in offer documents to include common risks more applicable to start-ups and early stage companies (ie, disclosure of risks around “loss of key personnel” has been expanded to refer to a “failure to secure key personnel”);
- expanding the description of additional or useful information recommended to be included in an offer document to include information about:
- remuneration and incentives for directors and senior management, as well as their interests in the securities of the offering company;
- exit options for investors; and
- where current company information can be accessed;
- indicating that CSF offering companies are not required to disclose the full financial report (or any notes) or other documents that accompany the financial report, but that information should be included in the CSF offer document identifying where investors can access the full financial report if it is available;
- aligning RG 261 with ASIC’s existing guidance in relation to forward-looking statements and financial forecasts for early stage and start-up companies (clarifying that CSF offer documents should only include financial forecasts, targets or other forward-looking statements that are based on reasonable grounds); and
- noting that use of the template CSF offer document is optional, with ASIC encouraging CSF offering companies to present and format offer documents to enhance readability, accessibility and digital compatibility for retail investors.
Additionally, ASIC has indicated that where CSF offering companies are relying on reporting and corporate governance concessions from disclosure obligations, then companies should still consider implementing processes to facilitate ongoing communication with shareholders. This is despite those companies not being required to facilitate such communications under the Corporations Act.
ASIC’s response to Consultation Paper 289
Generally, ASIC found responses to CP 289 supported proposals explaining how to apply for Australian financial services (AFS) licence authorisations to provide a CSF service, setting out obligations and responsibilities of AFS licensees and setting out specific requirements of the CSF regime. In response to the consultation, ASIC has made certain amendments to RG 262 including:
- setting out specific examples of conflicts of interest applicable to CSF intermediaries, with ASIC nominating the key conflict under the CSF regime for intermediaries as managing compliance obligations while also deriving financial benefits from publishing CSF offers and ensuring the success of those offers;
- providing further non-exhaustive examples of experience which will meet a CSF intermediary’s organisational competence requirements, with relevant experience for responsible managers extended to include acting as a legal adviser to AFS licensees and providing compliance services to AFS licensees (although this alone will not be sufficient);
- adopting transitional arrangements, until 30 June 2020, for CSF intermediaries to meet the surplus liquid funds requirement that applies to AFS licensees who hold client money (ie, ASIC will accept three month cash flow projections, instead of 12 month cash flow projections, with a corresponding adjustment to the cash buffer calculation);
- a requirement that the website address for a CSF intermediary’s platform be included on an AFS licence. If the website address is to be changed, then a licence variation application will have to be made. This is intended to limit the capacity of an AFS licensee operating more than one platform and reduce the risk of intermediaries rebranding CSF platforms inappropriately; and
- where CSF offers are included on a website with other investment options also listed, then the investment options on the website will need to be clearly segregated and provide sufficient information to facilitate an investor making an informed investment decision.
Furthermore, under RG 262 ASIC has significantly expanded the parameters for the data which it will seek from CSF intermediaries. ASIC notes that such data will not be made available to the public in a way that identifies individual CSF intermediaries or offering companies. ASIC has also provided some additional guidance in RG 262 in relation to outsourcing arrangements (including that a CSF intermediary must itself hold the trust account used for the CSF platform) and that CSF intermediaries can rely on ASIC’s registers to undertake reasonable checks on offering companies.
ASIC has also granted certain relief to public companies making CSF offers and operating CSF platforms. The relief includes:
- making amendments to ASIC Corporations (Consents to Statements) Instrument 2016/72 to reduce the compliance burden for CSF platforms associated with obtaining consent for statements in CSF offer documents as outlined in our earlier update;
- issuing ASIC Corporations (Financial Requirements for CSF Intermediaries) Instrument 2017/339, which gives effect to specific minimum financial requirements, including transitional arrangements, for CSF intermediaries discussed above; and
- making amendments to ASIC Class Order [CO 13/762], ASIC Class Order [CO 13/763] and ASIC Corporations (Nominee and Custody Services) Instrument 2016/1156 to provide that retail clients who hold CSF securities through a platform, or a nominee and custody service, have equivalent rights and protections as if they had acquired the CSF shares directly.
The finalisation of ASIC’s regulatory guidance and relief instruments completes the regulatory regime governing CSF offers. The CSF regime has been in operation since the legislation commenced on 29 September 2017.