17 January 2018
Crowd-Sourced Funding Intermediaries
Recent changes to the Corporations Act 2001 (Cth) (Corporations Act) have meant that Australian public companies now have access to crowd-sourced funding (CSF) if they meet certain criteria. One of the key players in administering and facilitating the new CSF regime in Australia will be the CSF Intermediary.
We look briefly at the role these CSF Intermediaries play in this new regime.
What is a CSF Intermediary?
A CSF Intermediary is the link between companies looking to raise funds under the CSF regime and the general market. It is the gatekeeper that holds all the trust in a CSF transaction.
What does a CSF Intermediary do?
CSF Intermediaries will play a key role in the new CSF regime, by:
1. supplying an online platform for:
a) eligible companies to publish their offers;
b) potential investors to view the offers;
c) companies and potential investors to communicate with one another; and
d) investors to make applications under an offer;
2. acting as the “gatekeeper” in deciding whether or not to allow an offer under the CSF regime to be published on their platform;
3. publishing, via the platform, the requisite risk warnings and disclosures;
4. enforcing statutory protections (eg investor caps); and
5. providing money-handling services as part of the offer process.
Additionally, a CSF Intermediary must monitor and manage CSF offers by:
6. ensuring offers are open or closed at the requisite times;
7. notifying the relevant company, and closing or suspending their offers, if:
a) the offer documents contain misleading or deceptive statements;
b) the offer documents omit requisite information; or
c) new circumstances have arisen, details of which need to be published; and
8. publishing any requisite notices.
What are the “gatekeeper” obligations?
In acting as the “gatekeeper”, a CSF Intermediary is required to perform the prescribed checks to a reasonable standard, which include:
1. ascertaining the identity of the company looking to raise funds via CSF;
2. ensuring that a company meets the criteria for being an Eligible CSF Company (as defined in the Corporations Act);
3. ensure that the CSF offer document contains the minimum content requirements; and
4. ascertain the information relating to key personnel (eg directors); and
Additionally, a CSF Intermediary will be expected not to publish:
5. defective CSF offers;
6. CSF offers that are misleading or deceptive; or
7. CSF offers where there are questions over the identity of key personnel or whether they are of good fame or character.
At the end of each financial year and as requested by ASIC, a CSF Intermediary must provide information about CSF offers published in the financial year.
How do you become a CSF Intermediary?
In order to become a CSF Intermediary, a company must apply for an Australian Financial Services Licence (AFSL). The AFSL must authorise the CSF Intermediary to provide a crowd-funding service.
Additionally, if the CSF Intermediary wishes to operate a secondary market for investors to dispose of or acquire existing shares in companies who have raised funds via a CSF, the CSF Intermediary must also apply for an Australian Market Licence (AML). A CSF Intermediary will have various obligations as the holder of a AFSL and AML.
To date, ASIC has already given the green light to seven companies, allowing them to become the first CSF Intermediaries under the CSF regime.
In view of the heavy onus placed on CSF Intermediaries to effectively administer and facilitate the CSF regime, it is expected that CSF Intermediaries will generally take the approach of automating as much of the offer process as possible, using tools such as automated searches, guided forms and pro-forma offer documents to ensure that companies looking to raise funds via CSF conform as much as possible to the legislation. This will likely mean that it will be important for companies looking to become a CSF Intermediary to establish themselves as soon as possible to garner the critical mass and cement their position in the CSF spot.
It is also anticipated that many issues will quickly surface as the CSF regime gets underway. This could lead to regulatory changes, and the fluid position will mean that early entrants will need to be in a position to quickly adapt and modify their platforms to conform.
Stay tuned for information on our upcoming seminar on crowd-sourced funding.
Authors: Oliver Shtein, Eric Kwan and Puria Davoodi