Crowd fund­ing — the new source of finance

ASIC has been mon­i­tor­ing the increased use of crowd fund­ing in Aus­tralia for invest­ment purposes.

​‘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 typ­i­cal­ly receive some nom­i­nal reward in return for their funds.

On 14 August 2012, ASIC issued guid­ance to pro­mot­ers of ​‘crowd fund­ing’ to clar­i­fy arrange­ments that may be reg­u­lat­ed by ASIC under the Cor­po­ra­tions Act 2001 (Cor­po­ra­tions Act) and Aus­tralian Secu­ri­ties and Invest­ments Com­mis­sion Act 2001 (ASIC Act).

ASIC con­sid­ers that cer­tain crowd fund­ing arrange­ments may involve:

• offer­ing or adver­tis­ing a finan­cial prod­uct, pro­vid­ing a finan­cial ser­vice or fundrais­ing through secu­ri­ties requir­ing a com­ply­ing dis­clo­sure doc­u­ment; or

• a man­aged invest­ment scheme under Chap­ter 5C of the Cor­po­ra­tions Act, the pro­vi­sion of finan­cial ser­vices requir­ing an Aus­tralian finan­cial ser­vices (AFS) licence or a fundrais­ing under Chap­ter 6D of the Cor­po­ra­tions Act.

These activ­i­ties are reg­u­lat­ed by ASIC under the Cor­po­ra­tions Act and ASIC Act and may impose oner­ous legal oblig­a­tions on oper­a­tors of crowd fund­ing sites and on peo­ple using those sites to raise funds.

ASIC has also high­light­ed some risks for oper­a­tors of crowd fund­ing web­sites and peo­ple con­sid­er­ing par­tic­i­pat­ing in crowd fund­ing projects. In sum­ma­ry, the risks high­light­ed were:

• a risk of fraud being car­ried out through crowd fund­ing websites;

• a risk that fund­ed projects are not com­plet­ed and the project spon­sors do not receive the rewards promised;

• a risk that the mon­ey col­lect­ed is lost due to the fraud or bank­rupt­cy of the web­site oper­a­tor before the mon­ey is passed on to the project creator.

For more infor­ma­tion on how to use a crowd fund­ing web­site and the reg­u­la­tions which apply, please contact: