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: