All members of ACfA are required to comply with the ACfA Charter of Good Conduct and this means that they undertake to protect the interests of investors. In the ACfA Label Framework, there are several requirements relating to mandatory disclosure by issuers, as well as rules on suitability assessments between investors and investment opportunities Regulatory framework
Safety comes with a regulated environment, and crowdfunding members that are full members of ACfA have voluntarily undergone an onboarding process that ensures that they have systems and procedures in place that mitigate uncertainty about their operations. We strongly advise all consumers to check the ACfA membership status of the platform before transacting. Regarding investments-based crowdfunding, we encourage consumers to check the regulatory and legal status of the platform before investing.
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There are usually no guarantees – government or other – provided to investors using crowdfunding platforms. Investors’ capital is invested at their own risk, and they must ensure that they do not invest money that they cannot afford to lose.
Safeguards for crowdinvestors include the following:all crowdfunding intermediaries are required to comply with the ACfA Charter of Good Conduct. In addition to this, ACfA members agree to undergo an annual compliance audit. Crowdfunding campaigns that are securities based take place through the issuance of a “mini prospectus” in terms of the ACfA Label Framework, and this provides the investor with the information that they need in order to make an informed investment decision. Crowdfunding intermediaries are required to conduct KYC checks on their investor clients and assess their suitability to the investment offered as well as their understanding of the risks involved.
Investing in unlisted companies involves the following risks of which all crowdinvestors must be aware before investing. Additionally, you are responsible for diversifying your investment portfolio across several asset classes. We recommend that you consult with your financial planner or advisor on portfolio diversification, and do not invest more than 10% of your savings in project sponsors.
Risk of loss of capital and loan defaults: The initial amount of capital invested is not guaranteed. This means that if the project sponsor does not succeed in meeting growth targets or is forced to liquidate, your investments can lose some or all of their value.
Liquidity risk: shares in project sponsors are not immediately liquid. This means that they cannot readily be resold or transferred to another investor, and could be immobilised for several years.
Valuation risk: the valuation of shares in project sponsors is an estimation based on several factors and is never a precise valuation.
Risk of dilution of shares: project sponsors are typically in a phase of rapid expansion that might be financed by several rounds of capital raising. This implies that your initial share in the company might be diluted in subsequent rounds as more shares are issued
The ACfA registered crowdfunding intermediary is required to submit a project sponsor prospectus to ACfA for approval, when conducting a securities type crowdfunding campaign. All information relating to verifications, due diligence and disclosures must be contained in this prospectus, in order for it to be approved. In addition to this the ACfA Charter of Good Conduct, which members are required to comply with, states that crowdfunding intermediaries also need to comply with all relevant local legislation.