Australia's second go at regulating crowdfunding

Photo: iStock.

This story was delivered to BI Intelligence “Fintech Briefing” subscribers. To learn more and subscribe, please click here.

Crowdfunding is one of the fastest-growing segments of alternative finance, and as a result fintech-friendly governments are increasingly looking at creating or changing regulation to stimulate its growth.

The Australian government is one such body: this week it made a second attempt to introduce crowdfunding-specific legislation, according to ZD Net.

The first attempt failed after senators claimed that the Senate committee in charge of compiling the legislation had unfairly dismissed stakeholders’ concerns.

These included fears that the new bill, known as the Corporations Amendment Bill, would impose heavy regulatory burdens on small businesses wanting to use crowdfunding, and that it was too restrictive in terms of both the businesses and investors that could participate. Now, the Bill has been reintroduced to parliament with several key amendments, and should come into effect six months after it receives royal assent.

The Bill has been amended to expand eligibility criteria for companies and investors allowed to engage in crowdfunding. The amended Bill will allow unlisted public companies with less than AU$25 million ($19 million) in gross assets, and less than AU$25 million in annual turnover, to raise capital via local crowdfunding sites. However, the sites will have to run checks on the companies they list on their platforms. The Bill’s previous version allowed only wholesale and sophisticated investors, who earn at least AU$250,000 ($185,000) per year or have assets worth AU$2.5 million ($1.9 million), to participate in crowdfunding campaigns. The new Bill allows all retail investors to participate, and to invest up to AU$10,000 ($7,400) per company per year.

However, Australia’s crowdfunding approach remains cautious. The Bill still only enables public companies to raise money via crowdfunding, excluding private companies. This is in contrast to crowdfunding regulations in places such as the UK and the US, where private companies are free to raise funds this way. Countries’ different approaches to crowdfunding regulation are likely due to how unknown the industry still is: given its nascency, Australia’s cautious approach is therefore understandable. However, if it proves too conservative, it could stifle the growth of equity crowdfunding in the country.

As this situation demonstrates, financial services companies are struggling to keep up with a mountain of new regulatory and reporting requirements — and it’s only going to get worse.

From the 2008 financial crisis through 2015, the annual volume of regulatory publications, changes, and announcements increased a staggering 492%. That’s creating an opportunity for a swath of new companies called regtechs. Regtechs are companies that use technology to help firms decrease their regulatory burden.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on regtech that explains what’s driving the regtech trend and where the biggest opportunity lies. It also provides examples that show how regtechs are providing solutions to compliance problems.

Here are some of the key takeaways:

  • Regtechs can help in many areas of compliance. This goes beyond automating legacy processes and can include interpreting legislation, designing new compliance processes, and managing and processing data.
  • Large financial firms represent the biggest opportunity for regtechs, but they’re also well suited to help fintech startups.
  • Regtechs face a number of hurdles to achieving significant scale and success. These include competition in the industry, the challenges of international growth, and building trust with customers.
  • Implementation of regtech solutions will result in staff reduction. These technologies will augment compliance teams in the short term, but could lead to job losses among compliance professionals in the longer term.

In full, the report:

  • Defines what regtech is and the problems regtechs are trying to solve.
  • Highlights the advantages regtechs have over legacy compliance solutions.
  • Provides regtech company case studies.
  • Details the outlook for regtechs globally and the impact they will have on compliance teams.

Interested in getting the full report? Here are two ways to access it:

  1. Subscribe to an All-Access pass to BI Intelligence and gain immediate access to this report and over 100 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> START A MEMBERSHIP
  2. Purchase & download the full report from our research store. >> BUY THE REPORT