Sharon M. Davison

Crowdfunding Portals One Year Later

In Uncategorized on April 19, 2017 at 10:36 am

Almost one year ago crowdfunding through funding portals and broker-dealers for small offerings and investors became effective. When the rules went effective there were 17 portals registered. Today almost one year later there are 26 portals registered with FINRA, with one having withdrawn.


Crowdfunding Is Here

In Broker-Dealers, Capital Formation, Crowdfunding, Portals, SEC on May 18, 2016 at 10:54 am

When I started this blog many people laughed and said we would never reach a day when you could raise money over the Internet. Well many of those same people started to call me when their clients started to ask questions about crowdfunding. The initial wave came after the JOBS Act allowed general solicitation and advertising for private offering of securities to accredited investors. But slowly I started to get calls about the newly proposed crowdfunding for small issuers to the general public.

So here we are. Yesterday May 17, 2016, 17 companies filed to raise money via crowdfunding. Each company had to file a Form C with the SEC and all offerings must be through a FINRA registered funding portal or a broker-dealer qualified to engage in crowdfunding.

I am going to look into where the money is being raised. As you know I have not looked favorably on funding portals. But let’s see what the companies think.

Please feel free to share your thoughts on crowdfunding. Also check back here as this new sector moves forward.



What is the benefit of a funding portal?

In Broker-Dealers, Capital Formation, Crowdfunding, FINRA, Intermediaries, Portals, SEC on February 4, 2016 at 3:40 pm

So the question that must be answered, with the approval of the FINRA funding portal rules by the SEC, is: What is the benefit of being a funding portal?

I am not questioning the benefit of crowdfunding. The issue here is why not just register a broker-dealer.

The new rules are billed as providing for the creation of limited purpose entities that are easier to create and maintain than a broker-dealer. However, the new rules look and feel very much like existing FINRA rules for the registration and regulation of broker-dealers. In fact the release (Reg. Notice 16-06) uses the existing registration rules as the reference point for understanding the funding portal rules.

The membership process includes the filing of Form FP-NMA. There is even the requirement for a membership interview, however, it may be held as a video conference. Should you decide to sell your FP there is also a change of control application. The time for the approval of a FP is shorter and the rules require a decision within 60 days of the filing of the application.

Once the FP has been approved by FINRA, the standard of conduct rules and compliance requirements are very similar to those of a broker-dealer. Funding Portal Rule 300(a) requires a FP to maintain a system of supervision that is reasonably designed to achieve compliance with the applicable rules and regulations. Yes you will be required to have written supervisory procedures.

FINRA will also come to visit you and send written inquiries about your activities. (Rule 300(a)(2)).

So back to the original question. What is the benefit of being a funding portal? It is clear that while streamlining the number of rules and the length of forms, the infrastructure that is required to run the FP compliantly will not be that different than a broker-dealer and you won’t be able to perform all of the services of a broker-dealer.

Also I have only outlined the FINRA rules, the rules that the SEC has in place in Regulation Crowdfunding will also have to be complied with. They cover due diligence with respect to issuers, education of investors and handling of investor funds.

Click here for the FINRA page on Funding Portals. Click here for the SEC Regulation Crowdfunding.