Australia: Part IV: Need Funding? Ask the crowd!

The Corporations Amendment (Crowd-sourced Funding) Act 2017('the Act') received royal assent on 28 March 2017 and will take effect on 28 September 2017. The Act has established a regulatory framework for crowd-sourced funding ('CSF'), allowing public companies to raise up to $5 million a year from a large number of individual investors through an online platform.

The diagram below illustrates how the regime will work. Our previous blog Part III: Need Funding? Ask the Crowd! explains some of the basic components of the framework in greater detail.


This framework has recently been developed further through the release of the Corporations Amendment (Crowd-sourced Funding) Regulations 2017 (Cth) ('Regulations') and two consultation papers by ASIC. The consultation papers give guidance to both public companies and intermediaries in using this new CSF regime and understanding and complying with their obligations.


The regulations outline the content and requirements for CSF 'offer documents' and expand on the role and obligations of CSF intermediaries.

Most importantly, under the regulations:

  • only fully-paid ordinary shares will be eligible to CSF;
  • the CSF regime cannot be used where a company making a CSF offer intends to use the funds to provide a loan to any of its related parties;
  • CSF offer documents must include prescribed risk warnings, details of the offering company, details of the offer and information on applicable investor protections;
  • intermediaries must conduct checks on offering company's identity and eligibility to crowd-fund; and
  • CSF offer documents will not constitute the provision of financial product advice.

ASIC's Guidance for Intermediaries

Providing a crowd-funding service will be a new financial service for the purposes of Chapter 7 of the Corporations Act. This means that those wishing to operate as intermediaries under the new CSF regime must obtain an Australian Financial Services Licence that authorises them to provide crowd-funding services. ASIC has released a proposed Regulatory Guide for intermediaries with Consultation Paper 289. In the draft regulatory guide, ASIC has highlighted the following as key aspects of the regime that intermediaries need to be aware of.

AFS Licence Obligations

As an AFS licence holder, CSF intermediaries will have to comply with their general obligations in s912A, and other relevant obligations in the Corporations Act 2001 (Cth). For example, this will include obligations regarding conflicts of interest, adequacy of financial resources, organisational competence and dispute resolution. In relation to the requirement to have adequate financial resources under s912A(1)(d), ASIC is planning to require intermediaries to show cash flow projections that cover at least 12 months ahead and demonstrate that they hold a cash buffer of at least 5% of the projected 12-month cash outflows. In assessing the knowledge and skills of responsible managers, ASIC will be looking for experience such as dealing in securities, funds management, operating a crowd-sourced funding platform, financial market operators or managed discretionary accounts operators.

ASIC expects that an application for authorisation to provide a crowd-funding service will relate to a single platform on a particular website. Therefore, if authorisation is granted by ASIC it will be tailored to that specific platform that it has assessed.

Specific Obligations under the CSF Regime

CSF intermediaries must meet their gatekeeper obligations which involve performing checks on companies seeking to make CSF offers before publishing CSF offer documents on their platform. This includes checking the company's identity, eligibility to make a CSF offer, ensuring the offer document contains the information required and checks on key personnel in the company.

They must also:

  • prominently display certain information on their platform, such as the prescribed general risk warnings and disclosure of platform fees paid to them by the company making the CSF offer;
  • provide a facility on its platform to enable people to make applications in response to CSF offers;
  • provide a communication facility that allows potential investors and companies making offers to communicate with one another about the offer; and
  • deal with application money appropriately and in accordance with the regulations.

Additional Obligations for Retail Clients

There will be additional obligations for intermediaries dealing with retail clients to ensure retail clients can make informed decisions and are not too exposed to excessive levels of risk. These will include ensuring that retail clients complete a risk acknowledgement, rejecting applications that would breach the $10,000 per company per year cap, and that they are informed of their unconditional cooling-off rights.

Data Reporting

ASIC is planning to require all CSF intermediaries to provide it with information about their business each year. This may include information such as the total amount raised by all eligible CSF companies through their platform, successful CSF offers made, unsuccessful offers, investors in CSF offers and the operation of their platform.

What's next?

ASIC will not be receiving applications to operate a CSF platform until the legislation comes into effect at the end of September 2017. They are receiving submissions on both consultation papers and regulatory guides until 3 August 2017. These papers and regulatory guides will serve as ASIC's interim policy until final regulatory guides are issued. The Government has also released draft legislation and explanatory materials which propose to extend the CSF regime to proprietary companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Grant Holley
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