How much can an issuer raise under the CSF regime?

Under section 738G of the Corporations Act 2001, eligible CSF issuers can raise a maximum of $5 million in any 12-month period across all CSF offers. The issuer must be an unlisted public company or proprietary company with consolidated assets and turnover under $25 million. Proprietary company issuers using CSF are exempt from the 50 non-employee shareholder cap in section 113.

What investor protections apply under the CSF regime?

Retail investors are capped at $10,000 per CSF offer per 12-month period under section 738ZC. They have a 5 business day cooling-off right (section 738ZD) and must acknowledge a 'risk acknowledgement'. The CSF intermediary acts as gatekeeper, conducting prescribed checks on the issuer (section 738U) and refusing or removing offers that are misleading or deceptive (sections 738Y-738Z).

ASIC INFO 225: CSF Intermediary Obligations and $5 Million Cap

ASIC INFO 225 guidance on crowd-sourced funding intermediaries: AFSL gatekeeper checks, $5 million annual issuer cap and retail investor protections.

INFO 225 scope and regulatory context

ASIC Information Sheet INFO 225 originally addressed Initial Coin Offerings and crypto-assets, but is now a key reference point for ASIC’s regulatory approach to alternative fundraising, including Crowd-sourced funding Australia CSF. It provides guidance on regulatory expectations.

The crowd-sourced funding (CSF) regime, outlined in Part 6D.3A of the Corporations Act 2001 (Cth), commenced for unlisted public companies on 29 September 2017 and was extended to proprietary companies from 19 October 2018. CSF enables eligible companies to raise funds from retail investors.

CSF allows eligible companies to raise up to $5 million in any 12-month period through a CSF offer document, facilitated by a licensed intermediary. Retail investors are subject to a $10,000 per company per 12-month limit, as detailed in section 738ZC. ASIC publishes annual statistics on CSF activity, including platform usage, capital raised, and issuer profiles.

Intermediary AFSL and gatekeeper obligations

CSF intermediaries are required to hold an Australian Financial Services Licence (AFSL) with a specific authorisation to provide a crowd-funding service. This licensing requirement ensures intermediaries meet certain standards of conduct and competence when facilitating crowd-funding offers.

Section 738Q outlines the general gatekeeper obligation. Intermediaries must take all steps needed to ensure the financial services they provide are delivered efficiently, honestly and fairly. This obligation underscores the intermediary’s responsibility to oversee the crowd-funding process.

Further obligations are detailed in sections 738U and 738V. These require intermediaries to conduct identity, criminal history and bankruptcy checks on the issuer and its officers prior to publishing an offer, and to ensure the offer document and related material are not misleading or deceptive. Intermediaries must also monitor offer activity and take action, including refusing publication or removal, where conditions outlined in section 738Y are met.

Issuer eligibility and offer mechanics

To participate in the Crowdsourced Funding (CSF) regime, an issuer must be an Australian unlisted public company or a proprietary company. To be eligible, the issuer’s consolidated assets and turnover must be under $25 million.

The amount an issuer can raise via CSF is capped at $5 million in any 12-month period. Issuers utilising the CSF regime benefit from [Prospectus disclosure exemptions Corporations Act] which outline the requirements for the CSF offer document. This document must contain the prescribed minimum information under section 738J.

Proprietary companies that utilise CSF are exempt from the shareholder limit outlined in section 113. The CSF offer document is lodged with ASIC and subsequently published via the platform of the intermediary facilitating the offer.

Retail investor protections

Retail investors participating in Crowdfunding Schemes (CSFs) are subject to specific protections. Section 738ZC limits the amount a retail investor can invest in a CSF offer to $10,000 within any 12-month period. This cap aims to ensure retail investors do not overextend themselves in CSF investments.

A cooling-off right, outlined in section 738ZD, provides retail investors with the opportunity to withdraw their application for a CSF investment within five business days of acceptance. This allows investors time to reconsider their decision.

Intermediaries facilitating CSF offers have obligations relating to investor communication. Any communication facilities provided by the intermediary must adhere to the requirements of section 738ZA. Furthermore, before investing, retail investors must acknowledge a 'risk acknowledgement' demonstrating their understanding of the inherent risks associated with CSF investments. Intermediaries are also subject to ongoing ASIC supervision and reporting requirements.