Open for Comment: FINRA’s Funding Portal Rules

Open for Comment: FINRA’s Crowdfunding Portal Rules and Related FormsWith all the noise about the proposed set of rules for crowdfunding the SEC released in October, one piece of the puzzle almost slipped by unnoticed. In tandem, FINRA released rules and related forms for funding portals as required under the JOBS Act.

To recap, funding portals involved in offerings relying on the JOBS Act’s crowdfunding exemption will be required to register with the SEC and become a member of FINRA. The comment period for the new rules runs through February 3, 2013.

The highlights of FINRA’s proposed crowdfunding portal rules are: 

  • Funding portals and their associated persons will be subject to the FINRA by-laws.
  • The application process is a fast track one (60 vs. 180 days) and simplified (five application standards vs. 14).
  • Funding portal members must generally adhere to the Standards of Commercial Honor and Principles of Trade (FINRA RULE 2010).
  • Funding portals must supervise the activities of associated persons, must have a written anti-money laundering compliance program and report regulatory proceedings and disciplinary events.
  • Funding portal members are subject to FINRA investigations and sanctions.
  • Funding portal members are subject to FINRA’s arbitration and mediation procedures.

The limited set of rules comes with a limited role. Funding portals are prohibited from offering investment advice or recommendations, soliciting purchases, sales or offers to buy securities, compensating employees based on sales and holding or managing investor funds or securities. 

Overall, FINRA has done a good job of streamlining the highly complex set of rules applicable to broker-dealers to the limited activities funding portals may perform. Most laudable is the absence of licensing requirements, such as the Series 7. 

As always, if you have questions or comments, please call, e-mail or tweet me @Bettina Eckerle.

Eckerle Law offers legal advice in a variety of transactional and regulatory matters and serves companies’ plenary business law needs. Its founder, Bettina Eckerle, is a veteran of Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz.  She also served as the General Counsel of two companies en route to IPO. Please visit the Eckerle Law website for more details.