Treasury has released a discussion paper on a potential regulatory framework for crowd-sourced equity funding (CSEF) in Australia. The discussion paper seeks stakeholder feedback on characteristics of potential CSEF models. Background.

Three options are outlined:
• option 1: a regulatory framework based on the CAMAC model;
• option 2: a regulatory framework based on the New Zealand model; and
• option 3: the status quo.

CAMAC recommended the development of a separate legislative framework for CSEF to make it easier for CSEF to be used in Australia. CAMAC recommended that CSEF issuers be required to be public companies. A new category of public company — the ‘exempt public company’ — would be created and would be relieved of some of the compliance requirements for public companies for a period of up to three to five years. Such companies would be exempt from requirements for continuous disclosure, holding an annual general meeting, executive remuneration reporting, half-yearly reporting, and appointing an independent auditor and having a financial report audited (unless certain financial thresholds are exceeded).

Differences in the New Zealand model compared to CAMAC’s recommended framework include:
• no CSEF-specific exemptions from public company compliance costs such as financial reporting and audit;
• the regime is not specifically limited to small enterprises;
• there are minimum disclosure requirements and investment caps are voluntary, with issuers and intermediaries to have in place arrangements to provide greater disclosure where there are no or high voluntary investor caps or the issuer is seeking to raise a significant amount of funds;
• there are no restrictions on intermediaries’ fee structures, although fees paid by the issuer must be disclosed; and
• intermediaries are able to invest in issuers using their platform, although details of any investments must be disclosed.

The Financial System Inquiry Report recommended that “Government should graduate fundraising regulation to facilitate securities-based crowdfunding and consider more holistic regulatory settings to facilitate internet-based financing.”