Financial System Review – click for the full report
Government should continue its current process to graduate the fundraising regime to facilitate securities-based crowdfunding. This would enable entities to make public offers of securities to a potentially large number of people (the ‘crowd’). The risks associated with crowdfunding investments would require some adjustments to consumer protections, including capping individuals’ investments and clearly communicating the risks.
Government should then use the policy settings for securities as a basis to assess wider fundraising and lending regulation to ensure it facilitates other forms of crowdfunding, including peer-to-peer lending.
A range of crowdfunding models are emerging globally. Crowdfunding facilitates the funding of projects or businesses, where small amounts of money are raised from the ‘crowd’ via an online facilitator (or platform).68 Financial crowdfunding models include:
- Securities-based crowdfunding, where the ‘crowd’ invests in an issuer in exchange for securities — either equity (crowd-sourced equity funding, CSEF) or debt.69
- Peer-to-peer lending, where an online intermediary facilitates lending between individuals, often in the form of unsecured personal loans, potentially to fund a business.70
- Graduate fundraising regulation to facilitate innovations in fundraising emerging from new technologies and ensure policy settings are consistent across funding methods.
- Provide firms, particularly small and medium-sized enterprises (SMEs), with additional funding options.
Article by Neil Slonim – Financial Reform Report released on 7 December 2014
If adopted, the financial reform recommendations made by the team headed up by businessman David Murray could usher in some of the biggest changes to Australia’s banking system in recent history.
The recommendations are broad, but the key ones impacting small business are those calling for super funds to drop their prices and the government to relax rules around governing crowdfunded equity.
The big banks will be required to hold much more common equity capital against their mortgage business if the inquiry’s recommendations are adopted, while financial planners would need to hold a relevant tertiary degree and be able to prove their competence in managing superannuation.
The inquiry has recommended a ban on self-managed super funds borrowing to buy assets and says the corporate regulator, the Australian Securities and Investments Commission, should be granted more power to crack down on white collar crime.
Numerous professional bodies expressed their support for the recommendations yesterday, including CPA Australia, whose chief executive Alex Malley said in a statement that the report “addresses some of the fundamental issues facing Australia’s financial system and signposts some of the critical work that needs to be done”.
“Recommendations for allowing the development of crowdfunding options for businesses to access, the establishment of a new ‘innovation collaboration’ and an emphasis on removing unnecessary regulatory impediments to innovation all have the potential to help business prosper,” said Malley.
However, SME banking expert Neil Slonim says that the 2.1 million small Australian businesses have missed out.
Slonim, who heads up advisory firm ‘The Banking Doctor’ told SmartCompany the report’s lack of specific recommendations relating to the SME banking sector is “disappointing”.
“There was really nothing specific in the 44 recommendations that related to SMEs and startups, other than a generic statement that the inquiry wants to encourage the development of crowdfunding and peer-to-peer lending, which would potentially give SMEs more funding options than they currently have,” says Slonim.
“But other than that, there is really very little if anything else in the inquiry that would give SMEs hope they would get better access to funding.”
Slonim says the two key banking issues facing SMEs are a lack of access to finance and the need for greater competition between the big four banks.
“The inquiry makes some recommendations that would level the playing field between the big four banks and smaller providers of mortgage finance, which will help the consumer sector, there is nothing similar for SMEs,” he says.
“There is a lack of genuine competition between the big four banks, which control more than 80% of the marketplace, in an environment in which it is very difficult for smaller players to compete for SME business.”
And while the Murray report recommends that the government extend protections from unfair contracts for SME loans, Slonim says that “assumes” small businesses are able to sign a contract with a lender in the first place.
Slonim believes it is likely the government will adopt most of the recommendations contained in the Murray report, but says there will be another period of consultation with Treasury before the government officially responds at the end of March 2015.
“Joe Hockey will now be lobbied by all and sundry, particularly the banks” he says.