Wednesday, 8 February 2017
Corporations Amendment (Crowd-sourced Funding) Bill 2016; Second Reading
That this bill be now read a second time.
I seek leave to have the second reading speech incorporated in Hansard.
The speech read as follows—
This Bill forms part of the Government's commitment to help transition the Australian economy from the mining investment boom to a more diversified economy, with broader-based growth, and long-term strength and resilience.
The crowd-sourced equity funding bill I am introducing today achieves this goal by opening up new and innovative sources of capital funding for Australian small businesses and start-ups – a key driver of growth and jobs.
This Government isn't just talking about creating jobs and growth – we are talking to industry and taking real action to achieve this.
This measure is another example of the Australian Government providing economic leadership through this period of transition, and backing Australians to back themselves.
The Government is supporting Australia's economic transition by placing jobs and growth at the centre of our policy agenda, which in turn enables us to address our social and fiscal challenges.
As a government, we are focusing on the policies that will boost investor confidence, drive productivity gains in our economy, particularly through innovation, and open up new markets through our successful and ambitious trade agenda.
This Bill being introduced today is an important part of this forward-looking agenda.
The Bill amends the Corporations Act 2001 and Australian Securities and Investments Commission Act 2001 to facilitate crowd-sourced equity funding in Australia, and implements the commitment made by the Government in the 2015-16 Budget as part of our Growing Jobs and Small Business package.
Crowd-sourced equity funding is a truly innovative concept. It allows businesses to obtain capital from a large number of investors through an online platform, where each investor typically contributes a small amount of money in return for an equity stake in the business.
In 2014, the Corporations and Markets Advisory Committee completed a review into the crowd-sourced equity funding landscape in Australia. It found this form of fundraising is costly and impractical for businesses, largely due to regulatory impediments in the Corporations Act that imposed an excessive compliance cost for start-ups and other small businesses.
The Government acknowledges the detailed recommendations put forward by the Corporations and Markets Advisory Committee. This Bill responds to these recommendations by establishing a legislative framework for crowd-sourced equity funding that addresses the regulatory impediments identified in the Corporations and Markets Advisory Committee's report.
The framework the Government is introducing will enable public companies to issue equity through crowdsourcing with reduced disclosure compared to what is required under a full public equity fundraising.
For newly registered or converted public companies that meet the assets and turnover tests, the framework provides concessions from some corporate governance and reporting obligations. To ensure investors are able to make informed investment decisions and not exposed to excessive potential losses, the framework sets out the minimum disclosure requirements and a $10,000 per issuer per 12-month period investor cap for retail investors. It also sets out a number of obligations that intermediaries will need to perform as part of providing a crowdfunding service.
It is not the Government's role to pick winners, but it is the Government's responsibility to create the right economic conditions for small businesses and start-ups to grow and thrive and take steps to remove unnecessary regulatory barriers. The framework set out in this Bill will enable Australia's innovative early-stage businesses to obtain the capital they need to turn good ideas into commercial successes.
Crowd-sourced equity funding will offer a new funding option for small businesses. It complements other forms of crowdfunding already available, such as rewards-based crowdfunding and peer-to-peer lending, to offer start-ups greater choice in how they fund and finance their operations.
It will serve as both a complement and a source of competition to more traditional funding options for small businesses, including bank debt products.
The Government has consulted extensively on the design of the proposed crowd-sourced equity funding framework. The model detailed in this Bill strikes the right balance between supporting investment, reducing compliance costs and maintaining an appropriate level of investor protection.
In December 2014, the Government released a discussion paper that raised options for a potential crowd-sourced equity funding model for Australia. The Government consulted on this over early 2015, including through two industry roundtables. Over forty submissions were received as part of this process.
The Government also took into consideration the recommendations of the Corporations and Markets Advisory Committee review, including specific requirements for businesses, intermediaries and investors. International experience was also taken into account, in particular the framework in New Zealand.
The consultation process indicated broad stakeholder support for a regulatory framework for crowd-sourced equity funding. Many stakeholders also recommended adoption of a framework quickly, noting that delays would risk impeding the development of the crowdfunding market in Australia. A number of crowdfunding platform operators also indicated interest in becoming licensed to provide platform services in Australia.
In August 2015, the Government released an outline of its proposed framework for public companies, reflecting many of the key aspects of New Zealand's approach, such as licensing and other gatekeeper obligations for intermediaries, reduced disclosure for companies raising funds, and a liberal approach to retail investor caps along with investor protections such as risk warnings for investors. Following a four week consultation period, over fifty submissions were received.
The Government undertook targeted consultation on the draft legislation prior to its introduction into Parliament, making a number of improvements to the draft legislation on the basis of this feedback.
The Government has also consulted with State and Territory governments, which have agreed to these amendments to the Corporations Act and consequential amendments to the ASIC Act, in accordance with the Corporations Agreement2002.
I would like to thank all of the stakeholders who participated in these consultations over the past two years. It is important that the regulatory framework for crowd-sourced equity funding operates effectively in order to maximise the benefit to businesses, intermediaries and investors. Stakeholder feedback has assisted with development of a framework that achieves this.
I would now like to turn to the provisions of this Bill.
Schedule 1 to this Bill inserts a new Part into Chapter 6D of the Corporations Act. This sets out the various elements that comprise the crowd-sourced equity funding framework.
Australia's crowd-sourced equity funding regime will allow eligible companies to fundraise up to $5 million per year from the crowd. The ability to raise such amounts will enable entrepreneurs of innovative early-stage businesses in Australia to obtain the capital they need to turn good ideas into commercial successes.
To ensure the regime is appropriately targeted, companies will be required to meet turnover and assets tests before they are eligible to fundraise under this Part. The threshold is set at $25 million. This will enable a broad range of companies to make use of crowd-sourced equity funding and provide investors with a wider range of investment opportunities. As the market develops, the ongoing appropriateness of these thresholds can be reviewed.
Under the framework, public companies will be eligible to use crowd-sourced equity funding. Following a consultation paper on proprietary company funding options released in 2015, the Government is continuing to consult on extending the regime to proprietary companies, which are generally prohibited from offering shares to the general public. I have instructed Treasury to continue developing a framework for proprietary companies as a priority and would expect that an extension of the framework will be introduced through subsequent legislation in the near future.
In the meantime, this Bill provides proprietary companies that wish to raise funds from the crowd access to the option to convert to a public company and receive exemptions from some of the more costly governance and reporting requirements for up to five years.
For small business people, time spent on regulatory compliance is time not spent working to ensure the success of their business. Businesses wishing to access crowd-sourced equity funding must at this stage be public companies. However, the Government is conscious that the demands involved in transitioning to a public company structure, and complying with the corporate governance and reporting obligations, can be onerous, particularly for the amount of funds that an early-stage business would typically seek.
Schedule 2 to this Bill sets out a number of concessions for newly registered or converted public companies that have restructured in order to access crowd-sourced equity funding. Provided a company undertakes crowd-sourced equity fundraising within 12 months of registering as a public company, it is eligible for exemptions of up to five years from requirements to:
Further, companies fundraising under this framework will be able to offer equity securities to retail investors with lower disclosure than currently required. This will improve access to crowd sourced equity funding for small businesses and start-ups as a full disclosure document can be costly and time consuming to prepare.
The Government recognises that reducing disclosure may also diminish investors' confidence about their capacity to make informed decisions about an offer. The Government proposes to set out disclosure requirements in the regulations that will ensure that investors have access to the key facts about the company, its structure and the fundraising. Investors will also be able to interact directly with the company to ask questions relating to an offer and the company will be able to respond to any questions.
The Government has listened to stakeholders on how to best balance the fundraising needs of businesses and investor protection. The framework in this Bill permits retail investors to invest up to $10,000 per issuer per 12-month period, allowing investors the opportunity to make substantial investments in a product, while also seeking to mitigate the size of their exposure. This Bill also provides a regulation-making power to amend this amount as the market develops. Retail investors will not be limited in the total amount of investment in crowd-sourced equity funding they can undertake, allowing them to diversify their investments. Investors will also be protected in the form of cooling off rights for a period of 48 hours after making an investment.
The final element of this Bill I would like to highlight is the importance of intermediaries to the operation of an equity crowdfunding market. As a gatekeeper, intermediaries provide an important quality assurance role, and in recognition of this intermediaries will be required to hold an Australian Financial Services Licence.
Requiring intermediaries to be licenced provides issuers and investors alike with confidence in the integrity of the intermediary and their capacity to carry out the obligations of operating a crowd-sourced equity funding platform. The framework sets out certain obligations that intermediaries will need to perform, including the requirement to conduct checks on issuers before listing their offer.
Ongoing responsibility for issuing licenses and monitoring the operation of the framework set out in this Bill will sit with the Australian Securities and Investments Commission. To support this, ASIC was provided with $7.8 million in funding through the 2015-16 Budget.
This Bill also makes amendments to Chapter 7 of the Corporations Act, to ensure the Australian Market Licensing regime can, in the future, be tailored to intermediaries operating crowd-sourced funding platforms. Schedule 3 to this Bill provides the Minister with the power to exempt certain market operators, including intermediaries, from specific obligations under the Australian Market Licensing regime. This will enable the Government to further reduce the compliance burden for operators of emerging and specialised markets, such as the crowdfunding market, as it matures. These amendments commence on the date this Bill receives Royal Assent.
Full details of the measure are contained in the explanatory memorandum. The Government proposes to make regulations to support the operation of the measures in this Bill.
The crowd-sourced equity funding framework will take effect six months from the date the Bill receives Royal Assent.
This package will help foster innovative economic activity, unlocking new sources of funding.
Introducing this Bill today delivers on the Government's Budget commitment.
It also delivers on the Government's commitment to back small and start-up businesses to help the Australian economy transition from the mining and investment boom to a more resilient and diversified economy that delivers jobs and growth to all Australians.