2016 has seen startling headlines on an almost daily basis, and in the midst of a politically and financially hectic year, it’s easy to lose sight of the news that matters – crowdfunding updates. Crowdfunding regulation continues to evolve this year, as governments adapt to the burgeoning crowdfunding sector, and engage with different bodies to reach a more liberal, modern vision of the equity crowdfunding landscape. Equitise is here to bring you the latest snapshot of the global community’s approach to crowdfunding, and how this regulation is affecting crowdfunding platforms worldwide.
Crowdfunding regulation in the US:
The US has been busy this year with its reality TV show of an election, but significant strides have nonetheless been made in crowdfunding regulation. After initial reluctance from the SEC (Securities and Exchange Commission) to get on board with opening up investment beyond accredited investors, the introduction of crowdfunding finally took place in May of this year. Already, rewards-based crowdfunding platform has announced its plans to expand as a major player into the equity crowdfunding game also. Similarly, up on Capitol Hill, measures are taken place to expand the legislation some currently see as limited. The Vice-Chairman of the House financial services committee, Patrick McHenry, has put forward a bill that would increase the $1m cap in the original legislation to $5m. Already though, the filing requirements of crowdfunding platforms are less demanding than those of security issuers, and entrepreneurs may conduct an an equity offering of up to US$1 million within a 12-month period through an intermediary, without filing a registration statement to the SEC. Only SEC approved portals may be used by entrepreneurs and investment alike, but as the marketplace becomes more diversified and larger, the consumer will be able to select the platform that best meets their needs.
Similar to its friends across the Atlantic, the UK’s ever-shifting political landscape has affected the alternative finance market, but still seen some change in regulation specifically for equity crowdfunding too. After this year’s Beauhurst report marked equity crowdfunding as the most active investor type in UK high-growth company funding, the government has taken active measures to bring the industry from the fringes into the mainstream. Given the UK represents 75% of all crowdfunding activity across Europe, with alternative finance having increased by 84% (£1.74 billion) last year, it’s unsurprising their regulatory framework is more advanced than their (presently) EU counterparts. In the absence of an umbrella approach to equity crowdfunding regulation across the EU, with member states favouring national regulation at present, the UK is free to amend the legislation put in place in 2014. The periodic review by the FCA (Financial Conducts Authority) is currently occurring, with P2P platforms of all shapes and sizes providing feedback to the FCA to assist in improving the regulatory environment surrounding debt and investment-based crowdfunding. Interestingly, those instruments traded within investment-based crowdfunding are defined by the FCA as “non-readily realisable securities” aka, they’re not listed on stock markets, and instead sold online. This definition was captured by extant FCA regulation, so the addition of new rules by the FCA are more centred around consumer protection – how crowdfunding platforms can market and make offers to clients.
Equitise has covered the rocky, controversial path to equity crowdfunding legislation in Australia previously on this blog, as the country has been unfortunately slow-moving in its attempts to regulate the market. A report, issued by the Corporations and Market Advisory Committee, focused on the crowd sourced equity funding market, encouraged legislators to amend the environment by drawing on influence from international models. It suggests a new regime similar to the UK, US and NZ should be adopted. The framework for companies to raise up to $5 million via crowdfunding per year is encouraging, but the government needs to take industry debate on board to ensure it has competitive, relevant legislation in place.
There’s the old adage that being born in New Zealand is like winning the lottery of life – but does this extend to the equity crowdfunding scene? The answer is – to some extent. When, in 2014, our liberal crowdfunding regulation led the world in its policy, with little in the way of existing regulation or platform advice to govern it, there was some concern about how it would play out. Consequently, international regulation has followed the NZ example, over $25 million has been raised across platforms and both institutional and cross-platform investment has taken place. Nonetheless, as the UK and US continue to debate the merits of raising the cap beyond initial limits, so too should New Zealand. This hasn’t yet occurred, and the $2m cap requires revisions so as to keep apace with regulation worldwide. Companies looking to raise $2-10 million are not satisfied by the present limits, and in the interests of regulation that serves the broadest number of entrepreneurs and investors alike, this should be reassessed.
Alternative finance is a burgeoning industry, and, as our monthly news roundups suggests, one which has no shortage of challenges and evolutions. This summary offers a small insight into the shifting landscape of crowdfunding regulation, where governments worldwide are increasingly listening to the crowdfunding industry to discuss the likes of investor caps and consumer protection to ensure entrepreneurs and investors are both protected. Check in with Equitise as your port of call for further exciting changes from the crowdfunding industry.