In an article published in the Sydney Morning Herald today, Caitlin Fitzsimmons reported that the Australian Securities and Investments Commission (ASIC) granted licences to seven platforms on Thursday allowing equity crowd funding platforms in Australia, with restrictions.
While most celebrate today as a great day for the small business community, others are questioning why it took more than 10 years for the government to allow consenting individuals to voluntarily transact with each other by equity investment.
ASIC would argue they were protecting investors from unscrupulous businessman resulting in platform owners, businesses and investors needing to wait for the government to get their act together therefore restricting equity investment activity outside of IPOs to only consenting adults negotiating and investing in a business privately. If you invest through the grape vine (word of mouth) its legal, invite the public to invest through a social media post, website, app or newspaper advert was illegal. How much has ASIC’s timetable cost you and your business by waiting 10 years?
The only alternative that has worked is a form of self-regulation, similar to the Chartered Accountants Australia and New Zealand and Certified Practicing Accountants for the accounting and tax profession, crowd funding platforms themselves would be the best placed to regulate themselves.
Similarities between the two professions.
Both areas are incredibly complex, it took 10 years for ASIC to find, review, consult, learn and finally allow equity crowd funding in Australia, how long would it take for ASIC, ATO or other government body to change and adjust to a newly discovered loophole from the private sector, 6 months, 1 year, 5 years or another 10 years?
A reason (one of many) why the government allowed the accounting profession to self-regulate was due to the mountain of industry knowledge required to know the basics and the short reaction time required to effectively regulate in an effective and timely manner was nearly impossible for the public service. In the end, two main professional accounting bodies regulate the accounting profession through regulating their voluntary members and lobbying the government for legislative changes should they require.
If we regulate the equity crowd funding industry in a similar way where we have two or more professional bodies made up of competing equity crowd funding platforms this would be a far more quick, effective and cheaper alternative.
Each body would be able to balance economics, efficiency and effectiveness of their regulations and at the same time not be too burdensome for businesses who wish to list on these platforms.
If the regulations of one body is inadequate and this leads to fraud then the reputation of the body would suffer, it would no longer be trusted among platform owners, businesses and investors and would flee to rival regulatory bodies. However, if the regulations are too burdensome and expensive, platform owners, businesses and investors would flee to a rival regulatory body as well. Therefore, these regulatory bodies would regulate each other through competition for platform owners, businesses and investors.
The accounting (and audit) profession has gone through a few controversies in the past with Enron, Bond Corporation and Christopher Skase and who’s to say we won’t go through a few more but the accounting profession has been able to keep up with the ever changing business environment like no other and should be used as a template for the equity crowd funding regulatory environment.
Forcing startups to go through the old, outdated and prohibitively expensive IPO process killed economic growth, billions of dollars that could have been invested were never invested, startup businesses which could have started never started, millions of jobs created were never created, and increased tax revenue from the increased economic activity would never have been received by the government.
But it’s easy to wave away the opportunity costs of benefits we never had in the first place, how much could you have achieved if equity crowd funding was available 10 years ago, how many opportunities has it cost you and your startup business?
How easy would it be for a startup with an idea in their head and a financial report prepared by their experienced Chartered Accountant in their hand to sell their idea to knowledgeable and sceptical investors through a well self-regulated equity crowd funding platform and not wait for ASIC to play catch up?
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