CSEF: a lesson in policy process

James Riley
Editorial Director

No sooner had the Government introduced the Corporations Amendment (Crowd-sourced Funding) Bill than the critics were out in force.

Sometimes you wonder if commercial interests have any idea whatsoever about how the policy and political processes work.

The crowd-sourced equity funding (CSEF) story has had a long journey so far. Back in June 2013 the Gillard Government released Advancing Australia as a Digital Economy: An update to the National Digital Economy Strategy. This report was the outcome of the Digital Economy Forum that Prime Minister Gillard had chaired in October 2012.

Minister Kelly O’Dwyer: announced new law in November

(Indeed the Prime Minister, in announcing a “Digital White Paper”, also successfully buried the Cyber White Paper. The challenge that the current PM is now also grappling with, of saying something meaningful about cybersecurity without compromising, is a topic on its own).

The recommendation was actioned by a reference to the Corporations and Markets Advisory Committee which reported in May 2014 (one month later than foreshadowed by Labor).

In the Growing Jobs and Small Business package in the May 2015 budget the Government announced that it had “Begun to introduce changes to support crowd-funding.”

Later, discussing an actual case study, the document describes the limitations on equity raising placed on private (proprietary) companies, and how public companies can raise funds from the public but have stricter compliance obligations.

They described the law they were working on, saying:

The new law will remove the costly elements of transitioning to a public company, enabling Rebecca to more easily raise funds from a large number of small investors.

The new law will balance supporting investment, reducing compliance costs for small businesses and maintaining an appropriate level of investor protection.

In August Small Business Minister Bruce Billson issued a discussion paper outlining the Government’s proposals and specifically asking whether proprietary companies should be allowed to crowd-source equity financing.

That paper committed the Government to introducing legislation in the Spring sittings, a position that was confirmed when Prime Minister Turnbull announced the response to the Financial Systems Inquiry.

That the new law was going to continue to be limited to public companies with less than $5 million in assets and turnover was announced by Assistant Treasurer Kelly O’Dwyer in mid-November.

Despite all this build up, when the legislation was introduced on the last sitting day of the year there was outrage.

Some commentators argued the plan was too focussed on start-ups and the opportunity for small and medium enterprise had been missed, complete confusion about the requirement to be public not private companies with the Government having to re-explain that a public company doesn’t have to be listed, and the more extreme version effectively criticising the Government for imposing any investor protections at all.

These are all varieties of a number of frequent reactions to policy announcements:

  1. The proposal announced isn’t what was in my submission and so the Government clearly hasn’t listened to stakeholders;
  2. The proposal doesn’t suit my business model so it is clearly wrong, and
  3. The proposal doesn’t fix some other issue that wasn’t the problem being solved.

But the special criticism has to be reserved for Ed Husic and Chris Bowen who have used the comments of these grand-standers for a bit of grandstanding of their own. In particular they objected to the legislation being introduced without consultation despite their willingness for a bi-partisan approach.

But let’s consider the counterfactual. If the legislation hadn’t been introduced this sitting, it couldn’t have been introduced until February. As it is the Bill has now already been referred to the Senate Economics Committee.

That means Labor and the Government will be able to work through their differences with the benefit of the views of everyone who has complained before Parliament reassembles in February.

Given the time since CAMAC reported (May 2014) or the announcements in the Budget (May 2015), shouldn’t the Government have been able to get this done sooner?

The answer is clearly yes. The inability to get things like this done though was the reason the Liberals jettisoned Mr Abbott and Mr Hockey.

But the Turnbull government is where it is; with the only option being to introduce the Bill late in the Spring session or early in the Autumn, introduction now gets to the outcome faster.

Of all the comments about the Bill, it is those of Stephen Baxter, co-founder of PIPE networks, panellist on Shark Tank and supporter of innovation that make the most sense.

He said, “They’re complaining about actually having to talk to shareholders once a year.” The question is going to be whether elements that are announced in the Innovation and Science Agenda will face the same torturous process of coming to fruition, and the same level of incoherent policy discussion on the way.

The chances are they will. You really have to allow two years as a minimum to get anything up from a standing start.

Update to original post:

The National Innovation and Science Agenda unsurprisingly included providing access to crowd-sourced equity funding as one of the initiatives in the agenda.

However, it said the Agenda “will introduce laws to provide easier access to CSEF in Australia” and the link provided was to the discussion paper in August mentioned above. One would have thought that the Industry Minister and Treasurer could have at least spoken to each other.

Do you know more? Contact James Riley via Email.

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