Global equity crowdfunding developments

By Jim Bulling and Michelle Chasser

Australia’s equity crowdfunding reforms have been delayed due to the Australian federal election. After passing the House of Representatives back in February the Corporations Amendment (Crowd-sourced Funding) Bill 2015 lapsed in May when Parliament was dissolved. As the Turnbull Government was returned to power at the election it is likely the Bill will be reintroduced shortly. While crowdfunding changes have stalled in Australia developments have been continuing in the rest of the world .

Easier crowdfunding for FinTech start-ups in the USA has moved a step closer. The Fix Crowdfunding Act and the Supporting America’s Investors Act easily passed through the US House of Representatives on 6 July 2016 with bipartisan support and will now be introduced in the Senate. The Fix Crowdfunding Act will increase the maximum amount of money that a start-up can raise through crowdfunding from US$1 million to US$5 million. The Supporting America’s Investors Act increases the number of people allowed to invest in a qualifying venture capital fund from 100 up to 500.

The UK introduced its crowdfunding reforms back in 2014. The FCA has now released a consultation paper seeking feedback on the reforms. The paper has identified a number of the FCA’s concerns including:

  • Management of conflicts of interest between the crowdfunding platform operators and their clients.
  • Poor due diligence being performed by crowdfunding platform operators on businesses raising capital which have failed shortly afterwards.
  • Whether mandatory disclosure of certain information and risks is required. For example, how many businesses that raised funds through the platform have since failed and how many have had successful payouts.

The FCA paper can be found here.

In Europe, a recent report from the European Commission noted that although equity crowdfunding is still relatively small, it is growing rapidly. Further, the Commission stated that the EU has no current intention to impose regulatory frameworks on equity crowdfunding. Rather, they will leave regulation to individual EU Member States, who can tailor their national regulations to “local markets and domestic regulatory approaches”.

Copyright © 2024, K&L Gates LLP. All Rights Reserved.