'Crowd funding' operators come under ASIC scrutiny
The Australian Securities and Investments Commission (ASIC) has issued guidance to promoters of 'crowd funding' in order to provide clarity on arrangements that may fall under the regulator's control.
Such funding arrangements involve the use of the internet and social media to raise funds for a specific project or business. In return, project sponsors typically receive some reward in return for their funds, according to the regulator.
"Crowd funding, as a discrete activity, is not prohibited in Australia, nor is it generally regulated by ASIC," ASIC commissioner Greg 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."
Such activities fall under requirements of the 'Corporations Act 2001' and 'Australian Securities and Investments Commission Act 2001', Tanzer said.
Depending on the type of reward offered by the project creator to those giving funding, such arrangements may fall under the definition of a managed investment scheme under the Corporations Act or the provision of a financial service which would require an Australian financial services licence.
ASIC has identified a number of steps that website operators can undertake to avoid crowd funding risks. These include:
· doing background and credentials checks on project operators to help minimise the chance of fraud;
· checking the viability of a project or business by finding out more information, such as when the project creator expects to complete the project and subsequently requesting from them periodical reports on their progress; and
· holding all crowd funding money in a trust account separate from its own assets, avoiding excessive holding periods and implementing appropriate internal controls to ensure withdrawals are appropriate.
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