Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)
General outline and financial impact
Crowd-sourced funding (CSF) is an emerging form of funding that allows entrepreneurs to raise funds from a large number of investors. It has the potential to provide finance for innovative business ideas and additional investment opportunities for retail investors, while ensuring investors continue to have sufficient information to make informed investment decisions (Chapter 1).
Schedule 1 to the Corporations Amendment (Crowd-sourced Funding) Bill 2016 (the Bill) amends the Corporations Act 2001 (the Act) to establish a regulatory framework to facilitate CSF by small, unlisted public companies. The CSF regime includes:
- eligibility requirements for a company to fundraise via CSF, including disclosure requirements for CSF offers (Chapter 2);
- obligations of a CSF intermediary in facilitating CSF offers (Chapter 3);
- the process for making CSF offers (Chapter 4);
- rules relating to defective disclosure as part of a CSF offer (Chapter 5); and
- investor protection provisions (Chapter 6).
Schedule 1 to the Bill also makes consequential amendments to the Australian Securities and Investments Commission Act 2001 (ASIC Act) to include a crowd-funding service, as defined in the Corporations Act, in the range of financial services covered by the ASIC Act
Schedule 2 to the Bill provides new public companies that are eligible to crowd fund with temporary relief from the reporting and corporate governance requirements that would usually apply (Chapter 7). These concessions provide temporary relief to these companies to support the CSF regime by reducing the potential barriers to adopting the required public company structure.
Schedule 3 to the Bill amends the Act to provide greater flexibility in the Australian Market Licence (AML) and clearing and settlement facility licencing regimes. Under the changes, the Minister would be able to provide that certain financial market and clearing and settlement facility operators are exempt from some of the requirements in Chapter 7 of the Act. Providing for this flexibility is necessary to enable secondary trading markets for CSF securities to be licensed once the CSF regime is established. The flexibility would also facilitate the development of other emerging or specialised markets as they would be subjected to a regulatory regime tailored to best address their activities.
Date of effect: The amendments in Schedules 1 and 2 to this Bill will commence on a day to be fixed by Proclamation. If the amendments do not commence within six months from the date of Royal Assent, they will commence on the day after the end of the period of six months after Royal Assent. The amendments in Schedule 3 will commence on the day after Royal Assent.
Proposal announced: The measures were included as part of the 2015 16 Budget.
Financial impact: The measure has the following financial impact:
The financial impact includes a movement of funds from 2015-16 to 2016-17 as part of the 2015-16 Mid-Year Economic and Fiscal Outlook.
Human rights implications: Human rights implications: This Bill raises a human rights issue. See Statement of Compatibility with Human Rights - Chapter 10, paragraphs 10.1-10.12.
Compliance cost impact: The compliance costs associated with this Bill are $50.3 million for the CSF model, and a further $0.6 million for changes to the AML regime. This has been fully offset from within the Treasury portfolio.
Summary of regulation impact statement
Regulation impact on business
Impact: This Bill will remove regulatory barriers to CSF, and will make available a new funding source for businesses. It is expected that the overall 'per business' compliance costs for issuers that participate in crowd-sourced funding will decline. However, given the likely growth in the number of businesses raising funds through these arrangements, the aggregate compliance burden over the economy is expected to increase.
- This measure recognises that regulatory impediments are the primary barrier to CSF in Australia. This Bill provides a model to reduce these regulatory barriers.
- Three models are discussed in the regulation impact statement - the model proposed by the Corporations and Markets Advisory Committee (CAMAC) 2013 review of crowd-funding in Australia, the model adopted in New Zealand, and a post-consultation model. These are considered against the status quo.
- The model in the Bill is the post-consultation model, which has the greatest net benefit.
- The regulation impact statement details the stages of consultation undertaken over 2014, 2015 and 2016 in considering and refining this model. This included an options paper released in December 2014, a detailed consultation paper with a proposed model released in August 2015, targeted consultation on the draft legislation in November 2015 and public consultation on draft regulations released in December 2015.
- The framework will be implemented through this Bill and associated regulations. The Government and the Australian Securities and Investments Commission (ASIC) will continue to monitor the regime to ensure the changes to the law are operating as intended.