25 October 2014

NZ regulator issues first equity crowd funding licences

31 July 2014  |  1164 views  |  0 Source: Financial Markets Authority

The Financial Markets Authority (FMA) today issued its first equity crowd funding licences under the Financial Markets Conduct Act 2013.

PledgeMe and Snowball Effect are New Zealand's first licensed providers of this new financial service.

Elaine Campbell, FMA Director of Compliance, said "The FMA is satisfied that both PledgeMe and Snowball Effect have met the criteria for a licence and have demonstrated how they'll meet the minimum standards set out in our licensing guide.

"This is an important step in enabling a more open and innovative market for companies and investors.

"However, it's important to remember that companies issuing securities through crowd funding services require less disclosure than companies listed on the registered exchange, NZX.

"Typically, these companies will be at a much earlier stage in their existence than listed companies, so their financial track record and business prospects will be much less clear."

Equity crowd funding is a new financial service in New Zealand. The service provider acts as an intermediary typically between smaller companies offering shares and investors looking to buy these shares. Many of the companies looking to raise funds will be start-up or early-stage businesses. Companies are limited to raising no more than $2 million from the public in any 12-month period.

The licensing of these crowd funding intermediaries forms part of the new capital-raising opportunities facilitated by the Financial Markets Conduct Act 2013 (FMC Act) and the Government's Business Growth Agenda.

Internationally, equity crowd funding is recognised for opening up new opportunities for smaller businesses to raise capital for growth. It is also a way to offer a more innovative form of investment to the public.

The FMA will monitor the newly regulated equity crowd-funding environment that has been enabled by the FMC Act.

"It's also our role to remind investors that these are higher-risk investments and that the public should do their homework before investing their money," said Ms Campbell. Investors can find more information on FMA's website under 'HHelp Me Invest'.

The FMC Act enables the licensed intermediary to facilitate the offer of shares by companies using their website. These companies are exempt from the requirement to provide a product disclosure statement (PDS). The crowd funding service is required to provide information about its service and the risks of investing through the service to investors. It must also have adequate disclosure arrangements in place so investors can find out about the companies offering shares on the crowd funding website.

"It's important for investors to approach buying shares offered through crowd funding services with their eyes open, and to ask plenty of questions of the companies they want to invest in. Investing in equity crowd funding is higher risk and we encourage people to seek financial advice when making these investment decisions," said Ms Campbell.

It is the FMA's role to license and monitor the compliance of the crowd-funding service provider. As part of their licensing requirements, the crowd funding service must display a warning statement telling potential investors about the risks involved. It must also provide information about how the service works, what its fees are and the terms of the client agreement. Crowd funding services must also be a member of a dispute resolution scheme.

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