‘Crowd funding’ involves the use of the internet and social media to raise funds in support of a specific project or business idea. Project sponsors or pledgers typically receive some reward in return for their funds. In some cases, the reward expected may be of minor value and is merely incidental rather than the purpose of the contribution.
ASIC Commissioner, Greg Tanzer, said ASIC has been monitoring increasing use of crowd funding for investment purposes to identify any arrangements, or aspects of those arrangements, that may be regulated by ASIC.
‘Crowd funding, as a discrete activity, is not prohibited in Australia nor is it generally regulated by ASIC’, Mr Tanzer said.
‘However, depending on the particular crowd funding arrangement, ASIC's view is that some types of crowd funding could involve offering or advertising a financial product, providing a financial service or fundraising through securities requiring a complying disclosure document. These activities are regulated by ASIC under the Corporations Act and ASIC Act and may impose legal obligations on operators of crowd funding sites and on people using those sites to raise funds.
‘We want to make sure anyone involved in crowd funding is aware of these obligations to ensure they operate within the law and don’t potentially expose themselves to penalties under the Corporations Act or ASIC Act’, Mr Tanzer said.
Along with other factors, depending on the type of ‘reward’ offered by the project creator to those giving funding, crowd funding could involve a managed investment scheme under Chapter 5C of the Corporations Act, provision of a financial services requiring an Australian financial services (AFS) licence or a fundraising under Chapter 6D of the Corporations Act.
There are also advertising and publicity restrictions that apply to advertising and publicising an offer of financial products or securities, in certain circumstances.