The Australian Parliament, through the voice of Treasurer Scott Morrison, recently introduced a bill aimed at removing the regulatory barriers to Crowd-Sourced Funding (CSF). CSF is a fundraising model that allows individual investors to directly invest in small companies, which might otherwise struggle to access affordable sources of funding. The concept of CSF is better known as ‘equity crowdfunding’ in other countries, and is for instance described as such in the American legislation.
Australia had already made several attempts to develop alternative funding channels for entrepreneurs and small companies, notably through the work of its legislator (the Australian Securities and Investments Commission) and the creation of the ASSOB, a platform that originates, trades, and aggregates unlisted securities in order to make funds available to early-stage companies with a high growth potential. However, the most recent Bill “recognizes that regulatory impediments are the primary barrier to CSF”, and by addressing this issue its authors’ objective is to effectively create “new funding models that flexibly support emerging firms that have the potential to facilitate innovation and contribute to productivity growth”.
Once in effect, the new legislation will lift some regulatory requirements (reporting, compliance, and governance) for issuers that meet the following criteria:
- to be an Australian public company limited by shares;
- to have less than AU$ 25 million in gross assets (or $18 million);
- to have less than AU$ 25 million in annual revenues.
On the other hand, individual investors cannot invest more than AU$ 10,000 (or $7,200) per issuer and per platform over the course of a given year. In April 2016, research and consulting firm Scott & Sullivan released a study that estimated the market size of the Australian fintech sector around $184 million in 2015 but also expected it to represent more than $3 billion in 2020 with an average annual growth of 76.36%. Prior to the recent change in regulatory requirement, one of the main drivers for growth was the improvement of the currently low adoption of alternative finance in the country. Indeed, Australian alternative finance volume per capita was four times lower than in neighboring New Zealand, and 7.5 times lower than in the USA, who leads the rankings with its more mature alternative finance industry.
Today, Australia is already the home of a number of successful fintech companies, and this in all the major segments of the industry: digital payments, personal and business finance, infrastructure and data analysis, blockchain, etc. For instance:
- Tyro Payments ➔ with more than 10 years of existence, a customer base of 14,000+ SMEs, and an unrestricted banking license; Tyro’s future is very promising and it is today one of the crown jewels of Australia’s fintech scene.
- Prospa ➔ this online lender that only targets businesses writes around $250 million of loans annually, a figure that is expected to double in the next couple of years.
- Visual Risk ➔ founded more than 15 years ago, this pioneer of the Australian Fintech industry aggregates and utilizes financial data to enable its users to visualize and assess risks an intuitive and meaningful way.
Those examples are only the ‘tip of the island’, as many players are entering the industry while established ones are growing. Today more than ever, Australia’s potential to become a major fintech hub is fueled by the activity of its local actors. And it seems that recently passed legislation will give them sufficient flexibility to adopt innovative solutions. In the words of Treasurer Morrison:
“From today, all eligible businesses will be able to test a range of financial or credit services (with up to 100 retail clients and unlimited wholesale clients for up to twelve months) without the need to apply for an Australian Financial Services Licence or Australian Credit Licence and without seeking approval from ASIC (the regulator)”.
In practice, it means that Australia went beyond the frame of usual sandboxes where approval from the regulator is needed prior to beginning the experimentation of innovative services. Here, there is only a need to notify the regulator when the testing phase begins.
Thanks to its world-leading infrastructure and an international network of expert partners, Crowd Valley is ideally positioned to assist investors, issuers, and intermediaries in entering the Australian CSF market. Any interested party shouldn’t hesitate to contact us.
About the author - Enzo Ramos
Born and raised in France, Enzo began working within Fintech in 2014, covering the regulatory changes than enabled the creation of French equity crowdfunding platforms for Lyon Place Financière, an association that regroups all actors of Auvergne-Rhône-Alpes’ financial place. There, he also worked on an exhaustive analysis of the regional stock market among other duties. Enzo has lived and studied in different countries, including the United States (Philadelphia & Monroe,MI) and France (Paris & Lyon).
Born and raised in France, Enzo began working within Fintech in 2014, covering the regulatory changes than enabled the creation of French equity crowdfunding platforms for Lyon Place Financière, an association that regroups all actors of Auvergne-Rhône-Alpes’ financial place. There, he also worked on an exhaustive analysis of the regional stock market among other duties. Enzo has lived and studied in different countries, including the United States (Philadelphia & Monroe,MI) and France (Paris & Lyon).
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