Red-tape threat to crowdfunding

Last updated 05:00 03/04/2014

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A local business leader warns red tape around "crowdfunding" could turn it into a nightmare.

John Walley, chief executive of the New Zealand Manufacturers and Exporters Association is planning to licence his online P2P lending platform Lendit, and said the process should be simpler.

"The early indications are that the FMA (Financial Markets Authority) might well kill it all with red-tape."

The new regulations are supposed to make it easier for businesses to raise capital.

"The essence of crowdfunding is a large number of small transactions. If you create rules for crowdsourcing operations that are equivalent to bank rules then crowdfunding won't happen in New Zealand," Walley said.

Walley said he had raised the question with the FMA last week when he saw the 40 pages of the crowdfunding instructions and the 37 pages of peer-to-peer networking instructions.

"I thought ‘this could turn into a red-tape nightmare'," he said.

Crowdfunding involves the public providing capital to businesses in exchange for shares.

Businesses will be able to raise up to $2 million a year this way, without issuing a formal prospectus or facing the usual scrutinies of the Financial Markets Authority.

Walley's is one of a dozen companies interested in setting up crowd-funding or peer-to-peer lending platforms.

But the crowd-funding organisations first need to be licensed by the FMA and the FMA has prepared guides to help those wanting to be licensed.

The lighter disclosure from fundraisers meant more responsibility was placed on the peer to peer lender or crowd-funding facility to ensure clients received a fair and transparent service.

FMA had consulted extensively before the minimum standards were developed, and received good feedback about its process.

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- BusinessDay

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