Gatekeeper obligations of CSF intermediaries

4 January 2020

Crowd Sourced Funding (CSF) intermediaries have a gatekeeper role that’s outlined in s. 738Q of the Corporations Act 2001 (Cth).

So who exactly is an intermediary?

An intermediary is a single platform that publishes a CSF offer document. 

And, we'll break down the role of the CSF gatekeeper intermediary in this article. 

Below, references to an Act are references to the Corporations Act 2001 (Cth).

In a hurry? Jump ahead. 

Checks

CSF intermediary must conduct checks before publishing CSF offer document.

A CSF intermediary must not publish a CSF offer document on a platform of the intermediary unless the intermediary has, before starting to publish the document, conducted the checks prescribed by the regulations to a reasonable standard.

Failure to comply with this subsection is an offence: subsection 1311(1)) of the Corporations Act 2001 (Cth).

Regulations

Regulations outline what is a reasonable standard in relation to all or any of the checks. And, an offence is an offence of strict liability.

The intermediary needs to conduct checks and to conduct those checks to a reasonable standard about things it knows or has reason to believe are the case.

The CSF intermediary must not  publish a CSF offer document if not satisfied of certain matters.

Intermediary publishing is prohibited in these cases

A CSF intermediary must not publish a CSF offer document on a platform of the intermediary, or continue to publish such a document while the offer is open, if the intermediary:

  • is not satisfied as to the identity of the company making the offer, or of any of the directors or other officers of the company; or
  • has reason to believe that any of the directors or other officers of the company are not of good fame or character; or
  • has reason to believe that the company, or a director or other officer of the company, has, in relation to the offer, knowingly engaged in conduct that is misleading or deceptive or likely to mislead or deceive; or
  • has reason to believe that the offer to which the document relates is not eligible to be made under the Corporations Act.

In the above cases, the CSF intermediary must close the offer: 738N(4)(e). 

Also, failure to comply is an offence: 1311(1) Corporations Act 2001 (Cth).

CSF intermediary must have adequate arrangements to ensure compliance with gatekeeper obligations.

Also, a CSF intermediary must have in place adequate arrangements, recorded in writing, to ensure compliance with its obligations above.

The Corporations Regulation 6D.3A.08 outlines the checks that a CSF intermediary needs to perform before publishing an offer document on a platform of the intermediary for a CSF offer of securities made by a company and is restated below.

Corporations Regulations 2001 - Reg 6D.3A.08

Gatekeeper obligation of CSF intermediary--checks

(1)  For the purposes of subsection 738Q(1) of the Act, this regulation prescribes the checks that a CSF intermediary needs to conduct before publishing any of the following documents (the offer document ) on a platform of the intermediary:

(a)  a CSF offer document (or a document purporting to be a CSF offer document);

(b)  a supplementary CSF offer document (or a document purporting to be a supplementary CSF offer document);

(c)  a replacement CSF offer document (or a document purporting to be a replacement CSF offer document);

for a CSF offer of securities made by a company (the offering company ).

Identity of offering company

(2)  The CSF intermediary must check the following information:

(a)  the name, ACN and type of the offering company;

(b)  the address of the registered office of the offering company;

(c)  the address of the principal place of business of the offering company.

Eligibility to crowd fund

(3)  The CSF intermediary must check whether:

(a)  the company satisfies the requirements in paragraphs 738H(1)(a), (b), (c), (d), (e) and (f) of the Act; and

(b)  the offer document satisfies the requirements in subsection 738J(2) and section 738K of the Act.

Information on directors etc.

(4)  The CSF intermediary must check the following:

(a)  the names and addresses of each person referred to in paragraph 6D.3A.04(1)(d);

(b)  whether the offer document contains the information required by subregulation 6D.3A.04(3).

Below, regulation 6D.3A.09 prescribes what constitutes a reasonable standard in relation to all the checks referred to in reg 6D.3A.08 for the purposes of s 738Q(2).

Corporations Regulations 2001 - Reg 6D.3A.09

Gatekeeper obligation of CSF intermediary--reasonable standard of checks

(1)  For the purposes of subsection 738Q(2) of the Act, this regulation prescribes what constitutes a reasonable standard in relation to all the checks referred to in regulation 6D.3A.08.

(2)  To the extent that information to be checked is of a kind that is included in a register kept by ASIC under the Act, or on ASIC's website, a reasonable standard is to check:

(a)  whether the information is included in that register or on that website; and

(b)  if the information is so included--whether the information is contrary to any other information that the CSF intermediary has; and

(c)  if the information is the name and address of a person referred to in paragraph 6D.3A.04(1)(d)--whether the name and address is consistent with the name and address used by that person on an original, a certified copy or an authenticated electronic copy of:

    (i)  a primary photographic identification document; or

    (ii)  both a primary non-photographic identification document and a secondary identification document.

(3)  Subject to subregulation (4), for all other kinds of information or matters to be checked, a reasonable standard is to:

(a)  explain in writing to the offering company what information or matters are required, including the level of detail required for such information and matters; and

(b)  require the offering company to provide such information and matters to the CSF intermediary in accordance with a reasonable process that the CSF intermediary has developed, documented and implemented for this purpose.

(4)  A reasonable standard for checking whether the offer document (see subregulation 6D.3A.08(1)) satisfies the requirements in section 738K of the Act is to check the offer document in accordance with a reasonable process that the CSF intermediary has developed, documented and implemented for this purpose.

(5)  In this regulation:

"certified copy" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

"primary non-photographic identification document" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

"primary photographic identification document" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

"secondary identification document" has the same meaning as in the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) .

Do you have questions or comments about the gatekeeper role of CSF intermediaries? Be sure to leave them below. 


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Vivian Michael
 

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to make quality business legal services accessible to entrepreneurs launching in Australia.

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