Imagine you could create something, from the very beginning, limited only by your imagination, but with the benefit of the learnings from experts and their experience from around the world. You have full view of the mistakes that others have made in the past – the benefit of 20-20 hindsight before you put pen to paper. How good would your creation be? Well, this is the situation that Crowd Sourced Equity Funding (CSEF) finds itself in Australia, and presented with a blank canvas, the regulators there (like many around the world) find themselves in a privileged and wonderful position.
Two months ago, CAMAC (The Corporation and Markets Advisory Committee), called for submissions regarding CSEF as part of the federal government independent review Advancing Australia as a Digital Economy: An Update to the National Digital Economy Strategy (June 2013). Major players and supporters of the industry, as well as interested parties, lodged their views, suggestions and concerns, and helped to build the patina on which the industry framework would be considered in Australia.
The primary considerations of the review included increasing the scope and market breadth to fund start ups and small business, investor protection (especially the “mum and dad” or retail investors), and ensuring that the costs of funding and subsequent compliance do not outweigh the benefits or the gains of CSEF.
Given the existence of CSEF in various forms around the world for a number of years, CAMAC outlined the many practical and working options of CSEF in operation. Most of the “heavy lifting” in terms of the framework has been addressed in one form or another, so the components exist for the Australian regulators to choose from to define their regulations. Examples of existing and proposed laws were cited from the USA, the UK, Italy, Canada, and New Zealand, and respondents were able to pick the good, as well as critique the components that may need adjusting for the Australian market.
To add to the smorgasbord of options, Australia also has the experience of the Australian Small Scale Offerings Board (ASSOB) who has more years of experience in CSEF than any other company in the world. With local knowledge relative to the local market, combined with many of the learnings from platforms and frameworks from around the world, there is no need to re-invent the wheel, but simply make incremental changes to the existing provisions to deliver the desired outcomes of CSEF.
Concerns, discussion points, and suggestions for issuers, or those who post projects on a crowd funding site offering equity for investor support, included such things as the definition of different types of issuer, suggested scope for the amount of money they can raise and from how many people they can raise such funds, structure of the issuer’s entity, costs of issuing and compliance, reporting framework, foreign participation, discussion about bad actors or those who have previous indiscretions with the law, as well as assessing risk from the perspective of the entrepreneur.
Protecting the investors is a primary consideration in the establishment of CSEF regulations. Defining the types of shares, as well as the different types of investors is key. Thought also had to be given to foreign ownership and how it is handled. Investor limitations, tax issues, acknowledging risk, tag along rights, and secondary markets are all considerations that need to be dealt with in the process of formulating the regulatory framework around CSEF.
Those with interests in operating platforms on which CSEF offers will be conducted gave their feedback on how intermediaries should be regulated and considered under the proposed laws. Licensing, pecuniary interest issues, disclosure, public solicitation, reporting, and transparency were all matters for which comment was invited. Some offered advice around minimum operating standards, share issue and share transfers, as well as dispute resolution. The mention of a Bad Actors Provision was also discussed in light of intermediaries as it was with issuers.
All of the submissions are now in, and CAMAC is giving due consideration to the information and suggestions offered in each one. The next step is a round table discussion to happen in the New Year, to which all respondents will be invited. And it is from this pending round table discussion, with so much input, global experience, and a collegiate approach, that we should have a wonderful solution for the government to implement in the not too distant future.
For those who wish to read the our submission please go to http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFSubmissions_6/$file/Bryan_Vadas_iPledg_CSEF.pdf