Shadow minister for the digital economy Ed Husic has ripped into FinTech Australia over comments it made to StartupSmart a day after equity crowdfunding legislation passed through the Senate on Monday.
“My view was that they only focused their representation [on] a handful of platforms that are their members as opposed to the wider range of fintech members who would be locked out from using the system,” Husic tells StartupSmart.
“This bill locks out so many people that even the small business ombudsman, Kate Carnell, said it would make more sense to wait for the changes to accommodate proprietary companies.”
Under the new legislation, only unlisted companies limited by shares will be eligible for equity crowdfunding.
Unlisted companies limited by shares are subject to more robust regulation and disclosure requirements under the Corporations Act. Private companies must change to this structure and inform the Australian Securities and Investments Commission (ASIC) once they have more than 50 non-employee shareholders, according to LegalVision.
The issue at hand
On Wednesday, Husic said in federal parliament that now-passed Corporations Amendment (Crowd-sourced Funding) Bill 2016 excludes “over 99.7 per cent of companies” and claimed industry group FinTech Australia has been surprisingly silent on the issue.
“It should be pointed out that this group, which received $200,000 in funding from the Turnbull government last year, hardly raised a peep about this massive barrier that will prevent so many of their members accessing equity crowdfunding — not a word,” Husic said in parliament.
Earlier this week, FinTech Australia chief executive Danielle Szetho told StartupSmart that while the legislation will exclude many startups, it will benefit a wide range of other businesses.
“It’s very easy for the startup community to become very self-focused,” she said.
Referring to these comments in parliament, Husic criticised FinTech Australia for not “properly representing the interests” of all its members.
“So, bizarrely, FinTech Australia says this bill — which is about to go through this place and which has always been talked about as helping startups — is not aimed at startups,” he said.
FinTech Australia: “Absolutely not” a government mouthpiece
Szetho has hit back by saying FinTech Australia is “absolutely not” a mouthpiece for the federal government and the $200,000 grant it received was specifically to help raise the profile of Australian fintech companies on the international stage through marketing and public relations support.
“We’re completely funded by our members,” Szetho told StartupSmart today.
The $200,000 grant, she says, went directly to media agencies to help members raise their profiles in markets like Indonesia.
“It’s nothing to do with government,” she says.
Szetho says FinTech Australia represents over 100 “diverse” companies and startups that range from lending platforms to blockchain solutions.
“[All our members are] dealing with customers’ money,” Szetho says.
“Our entire industry is being built on trust.”
In relation to equity crowdfunding, she says the group has been representing two key members, crowdfunding platforms Equitise and Crowdfunder, as well as a “couple of others” such as SwiftPitch.
However, Husic, who has shared similar concerns over the federal government’s funding of StartupAus, believes financial backing can hinder the independence of startup bodies.
“I see the value of government funding for bodies that are just starting out, however, the Coalition has a track record of opposing grant recipients from engaging in advocacy, which means you’ve got to have concerns [over] whether or not the group has felt it can raise its thoughts,” Husic told StartupSmart today.
Szetho disagrees, saying that she and FinTech Australia do voice their concerns on behalf of the fintech and startup sector when issues arise, such as the joint alert from the Australian Taxation Office and the Department of Industry, Innovation and Science on research and development claims for software development projects.
“I was straight on the phone … we’re certainly not going to be quiet about that,” she says.
Should all startups be eligible for equity crowdfunding?
With equity crowdfunding, Szetho says the fundamental issue is security, so making the form of capital raising available only to publicly unlisted companies — which must adhere to stricter regulation and disclosure requirements than private companies — can help protect retail investors from dire mistakes.
“There’s a fine line to walk between supporting innovation and consumer protection,” she says.
Szetho believes it would be “foolish” to rush in and open equity crowdfunding to all startups as this could “damage the whole industry”.
However, Husic says the eligibility requirement “ignores what happens in every other jurisdiction on the planet”, including New Zealand.
Support for the legislation, he says, comes on the back of a “resigned sigh”.
“People have been so starved for change, they’ll accept whatever’s been served up on the plate,” he says.
The best thing for everyone to do now, he says, is to “keep the pressure on to get a fair dinkum equity crowdfunding system that just doesn’t deliver for the platforms but for for startups and investors”.
“I’m happy to be corrected and be proven wrong but I just don’t see many companies using this,” he says.