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FINLAW: FINRA proposes rule changes to regulate Title III Funding Portals

Under Title III of the JOBS Act, a crowdfunding intermediary that engages in crowdfunding on behalf of an issuer of securities is required to register with the SEC as a “funding portal” or a broker-dealer, and to become a FINRA member.  In anticipation that the SEC will take action on Title III crowdfunding shortly, FINRA’s proposed rule changes feed confidence that Title III will be approved this year.

FINRA is proposing seven “funding portal” rules designed to regulate funding portals with simpler, yet similar, rules that govern the regulation of broker-dealers.  The proposed rules cover such mundane topics as the procedure necessary to become a FINRA member and FINRA reporting requirements to conduct, advertising and supervision rules.  And funding portals will be subject to FINRA investigation and disciplinary action for any rule violations.

Notably, FINRA’s rules eliminate requiring funding portals to have fidelity bond coverage, or to develop and implement a written anti-money laundering program, an apparent win for those advocating that the rules be narrowed to enhance the development of small issuer capital formation.

The proposed rule changes must be approved by the SEC in order to become effective.  Approval may come as early as 45-days after publication, but this time frame is subject to extension.


The information and materials in this article are provided for general informational purposes only and are not intended to be legal advice. The issues discussed include complicated areas of law and legal advice should be obtained from a securities attorney about your specific circumstances.

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