Equity crowdfunding regulation continues to develop rapidly as governments across the globe recognise the economic benefits it delivers. This surge in regulatory response to equity crowdfunding worldwide reflects a growing demand from businesses for readily-accessible capital. We’ll step you through the latest movements you need to be aware of.
USA: SEC REG A+
Last update, we touched upon the new U.S. regulations that came into play last year affecting crowdfunding. The final rules, often referred to as Regulation A+ (reg. A+), are an update and expansion of the previous Regulation A (reg. A) of the Securities Act 1933 that allowed for small capital raises of $5 million. This last development is part of a package of new laws encouraging small business-funding, collectively known as the Jumpstart Our Business Startups (JOBS) Act.
Reg. A+ provides for two tiers of offerings:
Tier 1, for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; and
Tier 2, for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.
Both tiers are subject to certain basic requirements, while Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.
Another key development facilitated by reg. A+ is the inclusion of ‘unaccredited’ investors. Previously, only accredited investors - people earning over $200,000 annually, or those with $1 million in assets (excluding their primary residence) - have been able to invest in startups in the U.S. Now - subject to certain investor caps - investment in early-stage businesses is open to everyone.
The Securities Act of 1933 required a company offering securities to potential investors to either register the offer and sale, or rely on an exemption from registration. Reg. A was a longstanding exemption from registration that allowed unregistered public offerings of up to $5 million per year. In recent years, reg. A offerings have been relatively rare, with the Securities and Exchange Commission (SEC) estimating that only 26 of these offers were conducted annually. The new reg. A+ removed many of the inefficiencies that hindered the success of reg. A.
FURTHER MOVEMENTS IN ASEAN REGION
Equity crowdfunding remains in a nascent stage of adoption in the ASEAN region. However, strong signals have been sent by authorities in the region’s strongest economies. Malaysia, Thailand, Singapore and Indonesia have made the most progress in the region. Malaysia was the first mover in the region, endorsing six licensed crowdfunding platforms in June last year. Singapore continues to explore the potential role of equity crowdfunding in its economy, since releasing a consultation paper last year.
Besides Singapore and Malaysia, Thailand and Indonesia have also made progress to accommodate the arrival of equity crowdfunding. Thailand has taken a similar approach to Malaysia, allowing retail investors to access early-stage investment in businesses, subject to a cap of c. $1,500 per issue. Professional investors, however, are not subject to any investment caps. Indonesia, slower to regulate, announced in October last year that the introduction of domestic crowdfunding regulation is imminent.
BACK ON OUR HOME TURF
Australia’s equity crowdfunding legislation, far behind its economic counterparts, is steadily progressing in its development. On 3 December 2015, the Corporations Amendment (Crowd-sourced Funding) Bill 2015 was introduced into Parliament. The Bill aims to promote equity crowdfunding by removing existing barriers under the Corporations Act, and provide greater investment opportunities for retail investors. The Senate Economics Legislation Committee is due to release a report regarding the Bill at the end of February – stay tuned for an update from us.