Jane Prentice (Ryan, Liberal Party) Share this | Hansard source

Innovation is constantly transforming the international financial system and this is likely to continue. Technology-driven innovation has the potential to deliver significant efficiency benefits and improved productivity, efficiency and investment outcomes right across Australia's financial system. New payment methods, innovative funding sources, better use of customer information and deeper cross-border linkages promise enormous opportunities if properly harnessed. Technology is reducing the number and need for a financial institution to secure and underwrite a financially viable contract between producers and consumer, and crowdfunding is emerging as an alternative funding source for small and medium sized enterprises around the world. There has never been a better time to start and grow a business anywhere in Australia, and from here to compete for customers located anywhere in the world.

On this side of the House, we know that funding for small and medium sized enterprises is essential to facilitate productivity growth and job creation, and crowdfunding and peer-to-peer lending can facilitate new technology enabled mechanisms for accessing finance and obtaining credit. Our future depends on us being a nation that is agile, innovative and creative. As the old saying goes: fortune favours the bold. We cannot be defensive; we cannot future-proof ourselves.

Prime Minister Malcolm Turnbull, arguably the best qualified person in any Australian parliament in the combined areas of law, commerce, banking, finance, investment, environment and water resources, constitutional change, information technology, communications, media and the arts, speaks from experience when he says:

... the disruption that we see driven by technology, the volatility in change is our friend if we are agile and smart enough to take advantage of it.

Our policy settings must facilitate entry of these disruptors rather than acting as a blockage. As part of our Growing Jobs and Small Business package, the coalition committed to introducing a new regulatory framework to facilitate crowdsourced equity funding for public companies. Crowdsourced equity funding is a relatively new and innovative concept that allows businesses to obtain capital from a large number of investors to an online platform where each investor typically contributes a small amount of money in return for an equity stake in the business.

The big challenge we must overcome right now is that start-ups and small businesses in Australia are struggling to access retail investors due to significant and ongoing compliance costs and red tape. Changing this will unlock growth and unlock innovation. I welcome the introduction of the Corporations Amendment (Crow-sourced Funding) Bill 2015 as another step closer to where we need to be to meet the challenges and opportunities that technology and innovation promise. I congratulate and thank the minister for bringing this bill forward. I have many innovative small to medium sized businesses in the electorate of Ryan which have developed some very creative and exciting world-first products and services, and they are currently looking for finance and new markets. I look forward to telling them about what we are doing today to give them another opportunity to help secure the finance they need to turn smart and clever thought into action. As I said earlier, there has never been a better time to start and grow a business anywhere in Australia.

The Foreign Minister this week provided a terrific example of where new thinking is transforming old industries, with the Australian start-up company called Flow Hive, which has made harvesting of honey from a beehive as simple as turning on a tap. The father and son team put this idea on a global crowdfunding website and they hit their funding target within three minutes—that is right, just three minutes—and they are now receiving $30,000 worth of orders every day. Like the Foreign Minister and indeed all Australians, I celebrate the success of Australian businesses that are taking Australian innovation onto the world stage. I am even more proud to be an Australian when I hear that a family owned Australian start-up businesslike Flow Hive has achieved what has been called the greatest step forward for beekeeping in 150 years. Wouldn't it be even better if the crowdsourced funding website that our creative thinkers and our innovative small to medium sized businesses used was also Australian owned and operated?

I applaud the coalition government's decision that development of a crowdsourced equity funding market in Australia is an urgent priority to support the funding needs of early-stage innovators. These reforms were considered by the Corporations and Markets Advisory Committee which identified regulatory impediments that make it costly and impractical for businesses to undertake crowdsourced equity fundraising. In this context, regulatory barriers can hinder competition and impact the market forces that push firms to innovate and perform at their best. Crowdsourced equity funding will complement other forms of crowdfunding already available, including rewards based crowdfunding and peer-to-peer lending to offer start-ups choices in how they fund their operations. It will serve as both a complement to and a source of competition to more traditional funding options for small businesses, including bank debt products.

To get to this point today the government also had a root-and-branch examination of Australia's financial system, just as we committed to during the last federal election. As most members know, the inquiry, chaired by Mr David Murray AO, was tasked with making recommendations that would position our financial system to best meet Australia's evolving needs and support economic growth. The inquiry also recommended facilitating crowdfunding by adjusting fundraising and lending regulations, streamlining issuers' disclosure requirements and allowing retail investors to participate in this new market with protections such as caps on investment.

The government has worked hard to get the regulatory framework right so that it can fit within Australia's financial system while creating more opportunities for small to medium sized businesses to grow but also provide some safeguards for Australian consumers and investors. The government consulted widely on potential models, including the model recommended by the committee and the model implemented by New Zealand in 2014. This bill inserts a new part into chapter D of the Corporations Act to create a new regulatory framework to facilitate crowdsourced funding in Australia. Graduating the regulation of market based financing will increase opportunities for small businesses to seek finance from the general public.

The framework set out in this bill adopts key elements of the New Zealand approach, such as licensing and gatekeeper obligations for intermediaries, reduced disclosure, risk warnings and a relatively liberal approach to retail investor caps. The bill balances stakeholder views on supporting investment by reducing compliance costs for equity fundraising while also ensuring appropriate levels of investor protection.

It is no doubt fair to say that because the previous the Rudd-Gillard-Rudd governments were better at talking than doing and, because Labor was better at spending than developing new markets and growing our economy, we are now playing catch-up with New Zealand and other developed countries in this innovative area of finance. Many stakeholders recommended adoption of a framework quickly because further delays would risk impeding the development of the crowdfunding market in Australia.

The government listened and engaged extensively with industry and other stakeholders on the design of the proposed crowdsourced equity funding framework. That is why the model in this bill strikes the right balance between supporting investment, reducing compliance costs and maintaining an appropriate level of investor protection. The new crowdsourced equity funding regime will allow eligible companies to fundraise up to $5 million per year from retail investors, which is higher than that allowed under both the New Zealand framework and the model recommended by CAMAC, the advisory committee. The ability to raise higher amounts will enable entrepreneurs of innovative early-stage businesses in Australia to obtain the capital they need to turn good ideas into commercial successes.

I am also pleased the government has shown foresight in the framing of this bill so that, as the market develops, the ongoing appropriateness of these thresholds can be reviewed. This bill permits retail investors to invest up to $10,000 per issuer per 12-month period, allowing investors the opportunity to make substantial investments in a product while also seeking to mitigate the size of their exposure. The bill also provides a regulation-making power to amend this amount as the market develops. Retail investors will not be limited in the total amount of investment in crowdsourced equity funding they can undertake, which will allow them to diversify their investments. Investors will also be protected in the form of cooling-off rights for a period of five days after making an initial investment.

The framework will enable public companies that are issuing equity through crowdsourcing to do so with reduced disclosure compared with what is required under full public equity fundraising. It also provides for newly registered public companies that meet the assets and turnover tests concessions from some corporate governance and reporting obligations.

The important role of intermediaries in the operation of an equity crowdfunding market cannot be overstated. As gatekeepers, intermediaries provide an important quality assurance role. For this reason, intermediaries will be required to hold an Australian Financial Services licence. The framework sets out certain obligations that intermediaries will need to meet, including the requirement to conduct checks on issuers before listing their offer. Ongoing responsibility for issuing licenses and monitoring the operation of the framework set out in this bill will sit with the Australian Securities and Investments Commission, which was provided with $7.8 million in funding through the 2015-16 budget for this task.

I note a number of other jurisdictions have a regulatory framework in place for crowdsourced equity funding, and consultation indicated wide ranging support for an Australian framework. Because the legislative framework and policy settings we are constructing today will need to continually evolve and keep pace with technologically driven change, we must as far as possible future-proof this regulation such that public administration will always encourage innovation.

Clearly in an age of rapid, technology driven change we simply cannot afford to 'set and forget' when it comes to rules and regulations. I note advice from the Minister for Industry, Innovation and Science that one of the most well-known stockbrokers in London said, 'Australia now has an innovation competitive advantage as a result of the coalition's changes to taxation for angel investors around capital gains tax and income tax.' Britain has been ahead of us in this area on innovation. That Australia has now leapfrogged Great Britain means our creative class and our small to medium sized businesses will be able to attract even more international investment, which will create more jobs and more growth in the economy.

The coalition are the real friend of small business, and we will always consider any emerging issues, concerns and aspirations for consumers, investors and business operators surrounding the scope and application of these laws. I welcome amendments in this bill to ensure the Australian market licensing and clearing and settlement licensing regimes can be tailored to operators of emerging and specialised markets, such as crowdfunding intermediaries. This will reduce the compliance burden for operators of these markets.

The framework set out in this bill will enable Australia's innovative early-stage businesses to obtain the capital they need to turn good ideas into commercial successes. I congratulate and thank the minister for bringing this bill forward, because it delivers on our commitment to foster innovative economic activity. This bill unlocks a new source of funding for small to medium sized enterprises that will push and pull more opportunities for Australian innovators and those other creative thinkers and doers into developing new products and services for the domestic and international market. As I have said before, there has never been a better time to start and grow a business anywhere in Australia and, from here, to compete for customers located anywhere in the world. I commend the bill to the House.

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