Table of contents
- Glossary of Definitions and Abbreviations
- Chapter 1. Crowdfunding Regulatory Regime
- Section 1.1 Private companies raising publicly: a new regime for African SMEs
- Section 1.2 Crowdfunding Intermediary: a new regime for African intermediaries
- Section 1.3 Crowdinvestors: a new regime for African individual investors
- Section 1.4 Implementation of the ACfA Label Framework
- Title 1.4.1 Recognition of the SRO by national regulatory authorities
- Title 1.4.2 Cross-border securities-based crowdfunding operations
- Title 1.4.3 Treatment of non securities-based crowdfunding operations
- Chapter 2. Crowdfunding Intermediaries
- Section 2.1 ACfA Label Categories
- Section 2.2 Applications
- Chapter 3. Types of Crowdfunding Operations
- Section 3.1 Crowdfunding Operations permitted only under Category 1
- Section 3.2 Crowdfunding Operations permitted under both Category 1 and Category 2
- Section 3.3 Treatment of offerings not considered as securities
- Chapter 4. Marketing
- Chapter 5. Cross-border Crowdfunding
- Chapter 6. Privacy and Data Protection
- Chapter 7. Anti Money Laundering and Terrorism Financing
- Chapter 8. Supervision, Audits and Enforcement
In a traditional POS, investors may purchase the company’s securities through an intermediary which is typically a licenced broker-dealer. The front-end and back-end activities involve the notification of the investor’s custodian bank, risk management checks, the placing of the order on the stock exchange, execution of the trade, clearing and settlement. In private placements, a company raising external capital might engage the services of a registered investment advisor or transaction advisory firm which makes introductions to selected investors, assists with company due diligence requirements, negotiation of term sheets and the drafting of a private placement memorandum. The company must also cover the costs of lawyers and auditors. Funds might be placed in an escrow account held by the investor’s custodian bank once a term sheet has been signed and up until due diligence is complete and funds can be released.
These steps constitute a “formal” fundraising process which, while burdensome for the company, is an important and valuable step in and of itself for the company’s professionalisation and maturity. Informal processes deprive the SME of these steps and result in weak shareholder protection. The ACfA Label Framework creates a new regime for intermediaries who provide these critical services affordably to SMEs while remaining economically viable themselves. Recognising that SME investment readiness is an onerous and expensive exercise with a high degree of uncertainty on success commissions, ACfA seeks to incentivise existing investment readiness service providers to become registered Crowdfunding Intermediaries in order to increase the success rate of their clients’ fundraising activities.
Therefore, in addition to incumbent transaction advisors and financial institutions, the target beneficiaries of the ACfA Label are physical persons or businesses that:
- Provide SME investment readiness services
- Provide start-up incubation or acceleration services
- Are raising SME funds for the first time and require a track-record building interim step
By targeting these new market actors, the ACfA Label Framework leverages the “face-to-face” relationships with entrepreneurs which underpins fundamental investor protection. It also increases the impact and efficiency of the significant supply of grant funding and subsidies already dedicated to SME investment readiness under the banner of financial inclusion. Furthermore, ACfA recognises the large number of qualified potential fund managers that struggle to build track records in a cost-effective way before raising their funds. The ACfA Label may be useful as an interim track record-building step for the next cohorts of African fund managers.
To encourage the testing of new business models, the ACfA Label Framework does not restrict the type of revenue-generating services that a crowdfunding intermediary may provide, nor does it prescribe the fee and success commission structures. However, the Framework does require transparency on intermediaries’ fee structures as well as disclosure of any conflicts of interests arising between intermediaries and their clients that may negatively impact crowdinvestors.
Recognising the need for partnerships to achieve sustainable business models, the ACfA Label Framework allows for partnerships between service providers in the crowdfunding ecosystem. However, registered Crowdfunding Intermediaries which are holders of the ACfA Label are the sole entities authorised by ACfA to provide SME investment readiness services in compliance with DOC 6-2019: Project Sponsor Prospectus.
Services that must be provided strictly by the registered Crowdfunding Intermediary
- Investment readiness and due diligence of the project sponsor which culminates in the investor information document: DOC 6-2019: Project Sponsor Prospectus.
Additional services that may be provided by the registered Crowdfunding Intermediary, or provided by third party service providers:
- Registration and account administration of crowdinvestors
- Crowdinvestor KYC compliance tools
- Marketing and communication about crowdfunding operations
- Payment services including digital payments, mobile wallets and e-wallets
- Transaction facilitation, from reception and transmission of orders to settlement
- Facilitation of post-transaction reporting, shareholder communication and distributions
- Company secretarial and other legal services
- Distributed Ledger Technology and Smart Contracts (blockchain-enabled crowdfunding)
- Other crowdinvestor services: educational trainings, tax support and foreign exchange
In the case where a Crowdfunding Intermediary partners with third party service providers, it is the responsibility of the Crowdfunding Intermediary to verify that those third party services are provided in compliance with the ACfA Label Framework and are in possession of all relevant national authorisations and licences. To facilitate this, ACfA strongly recommends that third party service providers join the association as “ACfA Ecosystem Members” so that they are kept informed of any changes to the ACfA Label Framework.
The ACfA Label Framework creates a new intermediary, the “Crowdfunding Intermediary”. Crowdfunding intermediaries may apply for the ACfA Label using the application file in DOC 5-2019: Crowdfunding Intermediary Application File, stipulating the category sought, as detailed in DOC 2-2019: ACfA Label Categories. The application process is described in DOC 4-2019: Crowdfunding Intermediary Approval Committee and Protocol. Once approved, crowdfunding intermediaries are listed publicly along with their ACfA Registration numbers in DOC 8-2019: List of Registered Crowdfunding Intermediaries. Registered crowdfunding intermediaries become full members of ACfA and agree to be supervised by ACfA.