The Financial Markets Conduct Act (FMC Act) made equity crowdfunding and peer-to-peer lending possible.
This is an exciting development for both start-up businesses and investors. New Zealand is leading the development of crowdfunding regulation in the Asia-Pacific region.
When the Global Financial Crisis hit in 2007 New Zealand’s market system was exposed and cracks began to appear. Our financial market laws were fragmented, our enforcement agencies had limited powers and there was little regulation to keep finance companies in check.
Since this National Government was first elected in 2008, we have undertaken a thorough review of our markets and implemented a comprehensive legislative programme to reform the entire financial sector.
This includes establishing the Financial Markets Authority (FMA), bringing the Financial Advisers Act into force and licensing non-bank deposit takers, auditors and trustees. The FMC Act, which came into force April 1, was the last major step in this suite of once-in-a-generation reforms.
Crowdfunding provides a new avenue for early-stage and growth companies to source the risk capital they need to flourish.
Companies can raise capital from the public on licensed crowdfunding platforms without the cost of preparing prospectuses and investment statements.
Investing in early stage growth companies is not without risk. Investors in crowdfunding platforms will be required by law to acknowledge that they understand those risks.
The FMA plays a key role licensing crowdfunding platforms, which have to meet minimum standards and comply with a number of conditions.
There is no investor cap for equity crowdfunding, however the most a company can raise is $2 million a year.
New exemption rules in the FMC Act also open up possibilities for employers to offer share purchase schemes, enabling employees to take an ownership stake in the businesses they work for.
This should help start-ups attract and retain talent - something that will be especially welcome in the technology sector where employee share schemes are common overseas.
New Zealand’s rules are now in place and the first licences have been issued. The United States is yet to finalise its crowdfunding rules, while Australia’s Corporations and Markets Advisory Committee has only recently issued recommendations in this area to government.
Crowdfunding is an innovative way to match New Zealand ideas with New Zealand investors. Along with the other reforms in the FMC Act, it will make a material difference to the ability of our companies to raise the capital they need to grow and prosper.