More on Crowdfunding Portals ~ Forms and Fees Proposed
The SEC has now adopted final regulations on crowdfunding, mandated by the JOBS Act Title III, enabling retail investors to buy within limits unregistered securities online. To offer these unregistered securities, private companies eligible for the crowdfunding exemption must use an intermediary—specifically an SEC registered broker-dealer or a new category: an SEC registered ”funding portal.”
FINRA filed proposed rules regarding funding portals, related forms, and related fees.
Establishing Portal Rules and Forms
On October 22, 2015, FINRA filed with SEC a proposed rule change to adopt the “Funding Portal Rules” 100, 110, 200, 300, 800, 900, and 1200, and their related forms:
Funding Portal Rule 100 (General Standards):
Rule 100 sets forth basic standards and definitions of terms for purposes of the Funding Portal Rules.
Funding Portal Rule 110 and Forms (Funding Portal Application):
Rule 110 covers the membership application process (“MAP”) for funding portals. The MAP will enable “FINRA to assess whether funding portals are capable of complying with applicable federal securities laws, the rules and regulations and the Funding Portal Rules…FINRA has simplified the MAP for funding portals to reflect the limited nature of their business.”
Funding Portal Rule 200 (Funding Portal Conduct):
Rule 200 requires that a funding portal member observe high standards of commercial honor and equitable principles of trade. It also prohibits aiding or abetting; any manipulative, deceptive or other fraudulent acts; and prohibits false and misleading statements.
Funding Portal Rule 300 (Funding Portal Compliance):
Rule 300 includes requiring that funding portals establish and maintain a “system to supervise the activities of each associated person of the funding portal member that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with the Funding Portal Rules.” Also, members must comply with FINRA reporting requirements, supply all required contact info, submit Form FP annually regarding gross revenue, and keep a current list of all associated persons.
Funding Portal Rule 800 (Investigations and Sanctions):
Rule 800 provides that funding portal members will be subject to specified FINRA rules governing investigations and sanctions, and it addresses the specific info that FINRA may make public “via an appropriate link on the FINRA website, to a funding portal member’s current SEC Form Funding Portal.”
Funding Portal Rule 900 (Code of Procedure):
Rule 900 includes a provision that funding portal members will be subject to specified FINRA rules setting forth in FINRA’s Code of Procedure. Except for the FINRA Series 9520, 9557, and 9700, this rule generally states that all funding portal members must observe the FINRA Rule 9000 Series. It also sets forth procedures for a person to become or remain associated with a funding portal member.
Funding Portal Rule 1200 (Arbitration and Mediation):
Rule 1200 provides that funding portal members will observe the following FINRA Rules: 12000 Series (Code of Arbitration Procedure for Customer Disputes), 13000 Series (Code of Arbitration Procedure for Industry Disputes) and 14000 Series (Code of Mediation Procedure), unless the context requires otherwise.
FINRA’s proposed Rule 4518
FINRA is also proposing to adopt new FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act) for inclusion in the FINRA rulebook, which would apply to registered broker members and provide that a member of FINRA should notify it in the manner prescribed by FINRA.
Establishing Portal Fees
FINRA also filed with the SEC a proposal for rules to establish fees for funding portals. FINRA is proposing to adopt Section 15 of Schedule A to the FINRA By-Laws governing fees for funding portals that are FINRA members. Comments are invited.