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).
Who needs to comply
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.
Licensed crowdfunding service providers have a number of on-going obligations, in addition to the minimum standards and standard conditions set out in their licence. Some of these are:
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.
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; andthe conditions imposed by regulations (if any).
Completing your annual regulatory return
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. See more.
Financial reporting obligations
Crowdfunding service providers are FMC reporting entities and must comply with the following:
Keep proper accounting records to assist with the preparation of compliant financial statements. REcords must be kept in English and a copy must be kept in New Zealand.
Prepare financial statements for the group's operation. Financial statements must comply with generally accepted accounting practices in New Zealand.
Ensure that financial statements are audited by a licensed auditor or registered audit firm.
Lodge financial statements and the auditor’s report with the Companies Office within 4 months of the balance date. See more.
Equity crowdfunding platforms are supervised by the FMA and must comply with the following obligations:
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. See more.
Fair dealing obligations
Fair dealing in advertising and communications – crowdfunding and peer-to-peer lending guidance note
The aim of this guidance is to ensure licensed crowdfunding and peer-to-peer lending platforms understand their obligations when advertising or communicating with customers. See more
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. Find out more about exemptions you can apply for under the FMC Act and current exemption notices.