Illustration: John Shakespeare.

Illustration: John Shakespeare.

The Corporations and Markets Advisory Committee has been working quietly and inexpensively for a quarter of a century, investigating gaps in Australia's corporate and financial markets law for the Commonwealth government, and recommending ways to close them.

It's one of the agencies that the government is eliminating as part of its spending crackdown. Its final report, on ways for Australia to simultaneously regulate and promote internet crowdfunding, shows why it should have been spared.

The report is not just a blueprint for crowdfunding here, but a new reference point for regulators around the world. The odds on Treasury producing similar reports on the same budget when it takes over CAMAC's job are not good.

Crowdfunding is raising money online, basically. It is used in non-profit campaigns but, as far as the markets are concerned, its real potential is as a new way to raise equity investments in corporate start-ups, through intermediary companies that run crowdfunding platforms. It is an important extension of the venture capital market because it is using the most ubiquitous distribution platform in the world - the internet.

It is still early days. Only about $US231 million of crowdfunded equity was raised in the United States and the United Kingdom last year, for example.

In Australia, crowd-sourced equity funding has barely begun, because the law suppresses it. Crowdfunders can only sell shares to wholesale investors, and there are only about 200,000 of them. Retail investors are legally excluded.

CAMAC's report recommends a new regime that it believes will both protect retail investors and encourage the development of this new source of risk capital, for companies generally, and for young companies in particular.

The report was commissioned by the Labor government before its election defeat last year, but the new government is said to be taking a keen interest in it, even as it rests the axe on CAMAC's neck.

It knows that the internet is creating a global venture-capital raising opportunity, and that many countries are moving to grasp it. Countries including the United Kingdom, New Zealand and Italy have already created crowdfunding regimes, the United States is close to doing so, and Canada is closer to doing it than Australia. The longer Australia waits, the greater the risk that the next good idea in Australia will be crowdfunded and developed elsewhere.

CAMAC's report compares steps other countries have taken to encourage crowdfunding. It is the first report anywhere that has done so, and will be read beyond these shores as a result.

It considers four options for regulating crowd-sourced equity funding. Adjusting the capital-raising rules governing private companies, limits on the type of investor crowdfunders can approach, changes to the rules that govern public company fund-raising, and the introduction of a new regulatory regime specifically designed for crowdfunding.

It recommends option 4, a new, custom-made regime: the United States and New Zealand have opted for the same solution, and Canada is likely to.

Companies wishing to use crowdfunding to raise equity here would adopt the status of ''exempt public company''. They could raise up to $2 million a year through crowdfunding intermediaries, and could issue separate classes of shares to maintain the control of founder shareholders.

They would not need to issue prospectuses for issues, and would be significantly less rule-bound than fully-fledged public companies.

The intermediaries that run crowdfunding platforms would function as their back office, running due diligence on issues, producing statements of risk, and managing communications between the company and its investors.

CAMAC suggests non-binding limits on how much retail investors could invest: $2500 a year per company, and $10,000 a year overall. New Zealand has no limits, but that is risky given the distributional power of the internet. The caps if adopted can be fine-tuned later, anyway. The first task is to get equity crowdfunding up and running as soon as possible.

All up, CAMAC's report is 245 pages long. It has taken submissions, consulted and produced over 40 similar reports for Canberra since 1991, most recently on executive pay, directors duties and derivatives.

The crowdfunding report is its last. Two unfinished reports, one on the future of annual meetings in a world transformed by information technology and another on lessons learned from managed investment scheme meltdowns during the global financial crisis, will be inherited by Treasury, which the government says will take over CAMAC's work.

Can Treasury cover CAMAC's beat on CAMAC's budget of less than $1 million a year? Frankly, I doubt it. Getting external advice won't be an option: consultants will hoover up $1 million before they clear their throats. CAMAC was a hidden gem: the government should not have killed it.

mmaiden@fairfaxmedia.com.au