NZ’s FMA has implemented a new license to regulate crowdfunding businesses.
Crowdfunding can be used for a variety of purposes – a means of getting quick cash as realised by a young Australian woman who crowdfunded for her $363 Uber ride after she woke from a night out and realised she wouldn’t be able to afford it; and for legitimate business purposes – as a means of raising funds for investments in a company or a project.
The ‘Crowd Funding Licence’ is a new license implemented by the Financial Markets Authority (FMA) of New Zealand to regulate these types of businesses.
What is the Crowd Funding Licence?
The FMA’s Crowd Funding Licence (CFL) allows for businesses to act as an intermediary between investors and companies making share offers. The company that holds the CFL provides the online platform or facility where offers of shares are made to investors.
The Financial Markets Conduct Regulations 2014 states that a person provides crowdfunding services if:
– they provide a facility by means of which offers of shares in a company are made; and
– the principal purpose of the facility is to facilitate the matching of companies who wish to raise funds with many investors who are seeking to invest relatively small amounts.
Before you apply to the FMA for a CFL the applying entity needs to ensure it has the following things:
– Real-Me Login – this is the New Zealand government log-in service. This is required prior to commencing the CFL process; and
– FSP Registration – the applying entity is required to be on the Financial Service Provider Register with the appropriate crowdfunding authorisations. This is required to be entered prior to commencing the FMA application process.
You should also ensure that you have adequate human resources who have a variety of skills and capabilities to operate a crowdfunding business.
The CFL application process is quite lengthy and heavily document based. Entities are waiting for up to 6 months for the CFL to be granted. We suggest an entity wanting to obtain a CFL should read the FMA application guides carefully before considering an application to ensure documentation is ready and licence obligations will be met. An entity has only 90 days to submit an application once they have commenced the CFL process.
The FMA specifies a range of minimum standards that must be met, including:
– Fit and Proper People: each representative employed by the entity must be of good character and be assessed as having the capability to successfully perform their duties under a CFL. The entity must have documented human resources processes, which outline how prospective representatives are assessed, and current representatives are monitored.
– Client on boarding: the entity must have documented procedures for bringing clients on board – whether they are issuers or investors; to ensure they are provided with adequate information to make informed decisions about the financial services being provided.
– Compliance Documentation: as well as your standard compliance documents i.e. AML/CTF policy, breaches and incidents, conflicts of interest etc, an entity is required to have tailored CFL policies that describe how the CFL business will operate including, Anti-Fraud Policies, Business Termination Policies and Fair Dealing Policy.
– Financial Resources: you must ensure that you maintain a ‘strong’ balance sheet and are able to pay debts as they are due.
Prior to electronic submission payment for the CFL is required. Payment can be made by credit-card or a direct payment (direct payments need to be arranged with the FMA prior).
CFLs are allowed to raise a maximum of two million dollars in any 12 month period as a condition of their licence. From 31 March 2016 the standard conditions for CFLs are changing. These conditions apply to all CFL holders.
Sarah works with the Compliance Team with a particular focus on compliance and legal services. Sarah also works with the Legal Team providing ongoing assistance in drafting and reviewing documentation as well as legal research. Sarah assists clients with AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She provides ongoing compliance support in the form of compliance program implementation and reviews.