Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

I rise to speak about the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. After listening to the speeches in the chamber today, I can't wait to get out of here and go and sign up to some of these amazing crowdsourced equity projects. It's going to build the nation.

But let's be very clear: what we're talking about here is risk capital—in fact, some of the highest risk capital that we can see being raised through a retail offer. I've raised concerns about this in the past—in fact, this morning, going into this debate, I read my previous speech—and I have looked closely at the bill, and I will say that some of the concerns I have raised previously have been addressed in this bill. But we're talking about risk capital here. We're talking about entrepreneurs raising money—to the $10,000 limit—from an unlimited number of Australians, up to their subscription level. Ten thousand dollars might not be a lot to people in this chamber, or to some people in this chamber, but it is a lot of money to an individual Australian.

Unfortunately, my experience, from having worked in equities markets both here and overseas, is: I've seen the best and the worst. I've seen the kind of unscrupulous behaviour that leads to severe hardship and loss of money. I campaigned, and my party campaigned, for four years to get a royal commission into misconduct in the banking and financial services sector. That's happening now, and we've seen a whole range of examples raised of how things can go wrong—and they're not necessarily even in high-risk products; quite often they're in things like superannuation and insurance. But what we're dealing with here is the highest risk spectrum of fundraising for retail investors.

In the past, before crowdsourcing became a thing in recent years, entrepreneurs who had a risky project at a very early stage of development—which, by definition, often makes it risky—would go to angel investors. Angel investors are highly sophisticated investors. They understand risk. They understand that the majority of these projects will never be commercialised. They will never be commercialised. Some of them aren't designed to be commercialised, I agree with that. In my first speech on this bill, I gave the example of a honey-making technology in Byron Bay—a friend of mine was involved in that. That was designed to create a backyard honey-making operation. It wasn't really designed to make a lot of money, but it's been quite a successful crowdsourcing venture.

I've seen what happens when you let sharks into the pool. There's plenty of burley being thrown in the water here with this legislation, let me tell you. I've seen, in particular, the high-risk end of the equities market. I've seen unscrupulous company directors mining shareholders for many years, continually raising equity capital on the promise that they were going to deliver high returns—blue-sky mining at its best. I'm concerned that the same kind of people that continually make a living out of being shysters—and it astounds me how they keep coming back—will look at this structure before us and will say: 'Yes, I'm going to participate in this. I don't need to have my accounts audited until they're at $3 million.' There is a list of things they'll have to comply with, but at the end of the day we are talking about blue-sky projects; we are talking about things at the early stages of development, which, who knows, may or may not get up. If an investor understands the risk—an investor is diversified, and they're happy to put $10,000 into a project that they either support on a personal or a philosophical level, or they don't mind losing $10,000 if it doesn't get up—that's fine. If they put in the $10,000 and they understand they may lose it but also that they might potentially get a very high return in the future, that's also fine. But, once again, whether it was the FOFA laws that we debated in here years ago, or the long and winding road to a royal commission, we can't make the assumption that investors will get that asymmetric information and a whole range of other things we looked at in detail in committees.

I have a few questions, if I get to be around when we go in committee, Acting Deputy President Bernardi, but I may be sitting in your chair, so it may not happen. So I would like to put on record the things I don't believe have been addressed in this bill. I'm still very concerned about secondary markets for these, let's call them, parcels or investment units in crowdsourced funding operations or companies. Whether it's a public company or a proprietary company, what is the secondary market? Is there one for these investments? We know that there's an appointed intermediary who has to have a licence and that they are going to be regulated by ASIC, but, once again, I ask people to look at the landscape here. We're getting a lot of revelations from the royal commission about how difficult it is for our regulators to get on top of these issues, even in big, well-respected blue-chip corporations.

Once again, we are dealing with extremely high risk equity capital here—the highest risk financing that I can see in the spectrum. So, putting aside any doubts I might have about whether ASIC have the resources and the powers to do their job properly in relation to these kinds of things and whether they will, I'm still very concerned that one of the key indicators of risk in any investment is liquidity. How will I get out of my investment if I choose to? Who will price that? Am I locked in, in perpetuity? What is the exit strategy for an investor in these businesses? Is it that, because they're investing in something, they can receive a unit of it, like the physical delivery of a product in the case of the honey-making product that my friend in Byron Bay was involved in? People invested their money so that they could actually get a unit of it. It was like a down payment on getting it once it was produced. Is it an investment to purely make a capital return? If so, how do I trade out of my shares, my units in these investment companies? If the company goes public—and, I think, in a diversified portfolio of high-risk angel investors, you might expect one in 20 or 30 companies to be successful. If my company were successful and it went on to become, for example, a listed company on the stock market because the technology had taken off, who prices the original unit holders? How is that process enacted? Do unit holders get access to an IPO? What happens if the company that has been set up through CSF decides that it wants to sell the company or sell the asset? I understand there are restrictions here on takeovers, but what if the company voluntarily decides to sell its technology to a third party, which quite often happens? Who prices the exit strategy for those CSF investors in that business?

This is a very immature market. As Senator Hume outlined, we really are at the beginning of a bountiful period, where these kinds of vehicles are going to facilitate entrepreneurial flair and develop the industries of the future. If that's the case, then I would say today that we need to watch this very closely. While the intentions of a lot of people in the fin-tech industry who are trying to do the right thing may be very good, it will attract sharks. Unfortunately, that's a sad fact of life. So how do we actually manage these risks? Is there going to be a secondary market? Do the financial intermediaries—the licence holders—provide any advice to investors? Will they be doing any research? They're handling the transactions. Having been a broker myself, it's very hard to handle transactions, if there is any kind of secondary market, without providing advice. And will that also be regulated under the Corporations Act and by the Australian Securities and Investments Commission? We're dealing with high-risk capital here and with the potential for investors to be ripped off. I'm sure there's potential for investors to be happy and to realise long-term returns but, given how immature this market is, I certainly would like to see answers to these questions.

On that note, I hope that I'll get a chance to ask some of these questions in committee and I will say that the Greens will be supporting this bill primarily because issues like the audit limit are subject to review. There is flexibility built into the legislation to allow these things to be changed as we fine-tune this and watch it very closely, but I do want some confidence in liquidity and the risk that poses to future investors.