Our most recent alert delved into the new crowd-sourced equity funding (CSF) regime and what form an offer document must take for an eligible CSF entity to raise funds. If you wish to operate as a CSF intermediary you will also be subject to the Corporations Amendment (Crowd-sourced Funding) Regulations 2017 (CSF Regulations). Partner, Michelle Eastwell and Law Graduate, Felicity Dunstone summarise the obligations of a CSF intermediary under the CSF Regulations.
What is a CSF Intermediary?
A CSF Intermediary (CSFI) is an intermediary entity that operates a CSF platform. The intermediary must hold an Australian Financial Services licence (AFSL) with an authorisation to provide a CSF service, and will be subject to the AFSL obligations under the Corporations Act 2001 (Cth) (Act).
The CSF Regulations provide guidance to intermediaries as to what their ‘gate keeper’ responsibilities are as operators of CSF platforms.
Publishing an offer document
The overarching obligation on a CSFI as a gate keeper is that it cannot publish, or continue to publish a CSF offer document, replacement or supplementary offer document when the document is not compliant with the prescriptive requirements in the CSF Regulations.
An onus is placed on a CSFI to conduct the following checks to a ‘reasonable standard’ in respect of a potential CSF offer, before the CSF offer is made on the intermediary’s platform.
- Offering company’s identity: A CSFI must check the offering company’s identifying details, including their Australian Company Number, company type, registered office and address of its principal place of business. Verifying these details against the Australian Securities and Investments Commission’s (ASIC) registers is an appropriate course of action. If a discrepancy is identified, the CSFI should not publish the offer document.
- Eligibility to crowd fund: A CSFI must ensure the offering company satisfies the eligibility criteria under the Act, which includes such matters as: the entity is a public company; the majority of directors reside in Australia and it has less than $25 million in gross assets. In most instances, it will be reasonable for a CSFI to review the ASIC registers, but in some cases independent verification will be necessary. The level of checking required will be dependent upon the circumstances of each CSF offer.
- Clear and concise offer document: This simply requires a common sense check to ensure that the CSF offer document consists of full sentences, is not overly complex and does not obscure the meaning of any of the prescribed content. ASIC expects that a CSFI will develop, document and implement appropriate and reasonable processes for such reviews.
- Content requirements: The offer document should be reviewed by the CSFI to ensure that the minimum content requirements (as covered in our previous alert) are included. However, there is no onus on the CSFI to verify the accuracy of that information.
- Key personnel: The CSFI should ensure that the names, addresses and information as to criminal offences, civil penalties and disqualification of the directors and senior managers of an offering company, are correct. These identification details may be verified by a driver’s licence or by ASIC’s registers.
If any of this information cannot be verified through a register maintained by ASIC, the CSFI will have performed the required checks to a reasonable standard by explaining in writing to the company what information is required for verification, as well as requiring the offering company to provide that information. The key here is for the CSFI to have developed, documented and implemented appropriate and reasonable processes for such provision of information.
General risk warning
Similar to the risk warning prescribed for CSF offer documents, a CSFI must also include a general risk warning in the terms outlined in the CSF Regulations. This risk warning must be prominently displayed on the intermediary’s CSF platform.
A CSFI will not be considered to provide financial product advice as long as the content is drawn from, or contained in, the offer document and the advice is not personalised. The benefit of this is that the CSFI will be entitled to publish the offer document and material drawn from or contained in the offer document, without needing an authorisation to provide financial product advice.
ASIC has also released Consultation Paper 289, intended to form a Regulatory Guide for CSFIs. The regulatory guide is intended to assist CSFIs to understand their role and comply with their obligations under the regime. The consultation paper is open for comment until 3 August 2017 and may be accessed here.