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Oz regulator says crowdfunding must obey financial rules

Analyst says ASIC "risks destroying" crowdfunding

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Kickstarter kicked Australia's financial services regulator, the Australian Securities and Investment Commission (ASIC), has run its eye over crowdfunding services and decided some effectively issue securities under Australian law.

“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,” ASIC Commissioner, Greg Tanzer said in a guidance note published today.

Those planning to offer crowdfunding services therefore need to lawyer up, the guidance suggests, lest they fail to meet the many obligations imposed on those who sell financial services products and securities. Failure to meet those obligations can mean colossal fines.

The Commission also offers some blunt-ish warnings for operators of crowdfunding sites, suggesting they protect consumers by conducting background checks on project creators, requiring them to provide details on just how and when they will deliver promised goods and services and holding investments in a trust fund.

Consumers are another target, with the Commission also publishing advice on things to consider before investing in crowdfunding. Perhaps ominously, that advice suggests using credit cards to make a crowdfunding payment may not be an entirely sensible idea.

The advice does at least end on a happy-ish note:

Supporting a project you really believe in can be a rewarding experience but you need to be careful someone isn’t taking advantage of your generosity.

Futurist Ross Dawson's first reaction to ASIC's guidance was that it represents bad news.

"ASIC is in great danger of stifling a thing that could be of great benefit to the economy," he said. "We do need regulation but this looks heavy handed." Dawson has since blogged about the ASIC guidance, and suggests ASIC "risks destroying" the fundraising technique if it makes viability assessments compulsory.®

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