Crowdfunding is a type of financial market service covered by the FMC Act. In general terms, a crowdfunding service is where you act as an intermediary between companies issuing shares and investors - by providing the facility (such as a website) where the offer can be made to the public. It is not a crowdfunding service under the Act if your service is only used for charitable or philanthropic fundraising, and donors don't receive shares.
What crowdfunding type is covered
The FMC Act covers equity-based crowdfunding. Equity crowdfunding is where companies raise money from the public by issuing shares. The Act does not cover rewards-based crowdfunding, where companies only offer a reward (for example, tickets, goods, credits on a website) to people who are providing money.
The Act enables companies to raise up to $2 million in any 12 month period, without having to issue an investment statement or prospectus (or a product disclosure statement from 1 December 2014).
Why get a licence
Crowdfunding must be done via a licensed crowdfunding service provider website if you want to take advantage of the lighter disclosure obligations that apply to crowdfunded share offers.
With a licence, you can provide services to companies who want to offer shares without supplying a product disclosure statement (PDS). By using your licensed service these companies can rely on an exemption in the FMC Act that means they don't need a PDS, although they must still meet all their other legal obligations. See clause 6 of Schedule 1 of the FMC Act for more about the exemption.
Licensees obligations include notifying the FMA of certain events and providing us with information. For example, you must notify us when a new director or senior manager is appointed by completing a declaration form.
Minimum licensing standards and conditions
To become a licensed crowdfunding service provider you'll have to meet and maintain certain minimum standards. The key standards in the Act (section 396) are mentioned below.
Your directors and senior managers (current or proposed) must be fit and proper for their positions.
Your business must be capable of performing the service effectively and in keeping with your licence conditions.
We must have no reason to think you're likely to contravene your licensee obligations.
The licence is subject to a condition that the licensee or authorised body may, under the licence, provide only the market services or class of market services to which the licence relates and for which each person is authorised under the licence; and the conditions imposed by the FMA under section 403– these will generally include the standard conditions and/or any specific conditions; and the conditions imposed by regulations (if any).
Every licensed crowdfunding provider is required to complete and submit an annual regulatory return which is a series of questions about your business and how your licensed service is used. The information you provide us through the annual return helps us to:
better understand your business and the services you offer
ensure the information we have on your business is current
focus our monitoring activities more effectively.
All licensees will need to submit their return to us by 31 August for the 12 months to 30 June.
You must provide a written risk assessment of the money laundering and financing of terrorism activity you could expect in the course of running your business.
You are required to implement an anti-money laundering and countering financing of terrorism programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism.
You are required to appoint a compliance officer to administer and maintain your programme.
You are required to perform due diligence processes on your customers. This includes customer identification and verification of identity.
You are required to report suspicious transactions.
The fair dealing requirements in the FMC Act are broad principles that prohibit misleading or deceptive conduct; false, misleading or unsubstantiated representations; or offers of financial products in the course of an unsolicited meeting.
The aim of this guidance document is to ensure licensed crowdfunding and peer-to-peer lending platforms understand their obligations when advertising or communicating with customers.
The FMA has wide powers to exempt persons or transactions from some financial markets law requirements. These powers enable us to remove rigidities in the law and ensure requirements for businesses are reasonable and cost-effective.