Crowd-Sourced Funding in Australia: the Part 6D.3A regime

What CSF is

Crowd-Sourced Funding (CSF) is a regulated capital-raising regime established under Part 6D.3A of the Corporations Act 2001. It provides a pathway for eligible companies to raise capital from a broad range of retail investors.

The process involves a licensed CSF intermediary facilitating the offer of equity. Companies utilising this regime are not required to produce a full prospectus; instead, they prepare a simplified disclosure document known as a CSF offer document.

The CSF regime initially commenced for unlisted public companies and was later extended to include small proprietary companies, although these companies are subject to additional governance requirements.

The caps

The Part 6D.3A regime establishes limits on the amount a company can raise through crowd-sourced funding (CSF). A CSF company is restricted to raising a maximum of $5 million in any 12-month period. This limit applies to the total amount raised through CSF and certain other specified types of offerings.

Individual retail investors are subject to a cap on their participation in CSF offers. Each retail investor cannot invest more than $10,000 per CSF offer, per intermediary, within a 12-month timeframe.

Wholesale-investor offers conducted under the existing wholesale exemption are not subject to these retail investment caps. These offers can occur concurrently with CSF offerings targeted at retail investors.

The CSF intermediary licence

A CSF intermediary in Australia must possess an Australian Financial Services Licence. This licence must include a specific authorisation to provide a crowd-funding service. This requirement ensures intermediaries meet minimum standards for providing financial services.

The role of the CSF intermediary is multifaceted. They are responsible for verifying the eligibility of companies seeking funds through crowd-funding and assessing the suitability of the offers being made. Intermediaries also provide the platform through which the offers are hosted and are obligated to conduct anti-money laundering and counter-terrorism financing (AML/CTF) customer due diligence on investors participating in the offers.

Further guidance for CSF intermediaries can be found in ASIC Regulatory Guide 261. Requirements for companies undertaking crowd-funding offers are detailed in ASIC Regulatory Guide 262.

Obligations on issuers

Issuers seeking to raise funds through the crowd-sourced funding (CSF) regime are subject to specific obligations to ensure transparency and investor protection. A CSF offer document must be lodged and it must satisfy prescribed minimum content requirements.

Proprietary companies raising funds via CSF are also required to adhere to additional governance rules. These rules are triggered by accepting investments from CSF investors and include minimum requirements relating to directors, audits, and reporting. Directors should regularly director duties self-check to ensure compliance.

Issuers must be mindful of the legal consequences of inaccurate or misleading information. Any misleading or deceptive conduct contained within the CSF offer document carries the same statutory liability as would apply to a prospectus. This exposes the issuer to potential remedies from both the Australian Securities and Investments Commission (ASIC) and individual shareholders.