Proposed changes to crowd-funding regulations in Australia may have an impact on insurers, particularly those underwriting directors’ and officers’ (D&O) and management liability cover, law firm Clyde & Co warns.

Crowd-funding – taking small amounts of finance from a large number of investors – has been valued at more than $US5 billion ($6.41 billion) a year worldwide and is increasingly popular among small and medium start-up ventures.

Dean Carrigan, a partner with the law firm, says some D&O policies feature exclusions for securities claims or “offerings”.

“Policyholders that may engage in crowd-funding activities will want to ensure such activities are covered.”

Traditional distinctions between public and private companies in D&O policies may be blurred by the emergence of hybrid public-proprietary companies.

“Policyholders will also want to ensure the pertinent definition of ‘loss’ covers losses that might arise out of crowd-funding.”

Coverage is needed against lawsuits that could require invested capital to be reimbursed.

Fraud or dishonesty exclusions will be analysed to ensure they do not bar coverage if investors assert crowd-funding fraud claims.

In Australia crowd-funders must operate within existing regulations, but unlike jurisdictions such as the US and New Zealand there is no specific framework.

The Corporations and Markets Advisory Committee (CAMAC) has proposed a new regulatory regime for crowd-funded equity under the “exempt public company model”.

Changes would need to be made to the Corporations Act 2001, because current laws present “fundamental difficulties” for proprietary and public companies alike, CAMAC says.

Federal Treasury released a crowd-funding discussion paper in December that analyses three possible models: the one proposed by CAMAC; the one adopted in New Zealand; and the status quo.

Consultation closed on February 6.