Sharon M. Davison

Crowdfunding Intermediaries

In Broker-Dealers, Crowdfunding, Portals on April 10, 2012 at 8:49 pm

The newly passed Jumpstart Our Business Startup Act (JOBS Act) has clarified some but not all of the issues concerning crowdfunding intermediaries. Issues that still need clarification are:

  • Will funding portal  intermediaries have a different self-regulatory organization than registered broker-dealers;
  • Will registered broker-dealers have to follow FINRA rules for private placements or just  the new crowdfunding rules;
  • Who will hold the funds invested for funding portals?
  • What will the registration process for funding portals consist of?

The Crowdfunding Leadership Group, in a letter to President Obama, dated April 5, 2012 has stated its intent to create self-regulation for the crowdfunding industry. While their proposed principles basically follow the JOBS Act requirements, they do commit to the development of a code of conduct for portals with enforcement mechanisms to punish bad actors. Would registered broker-dealers involved in crowdfunding also have to register with a new SRO?

Funding portals cannot give investment advice or hold funds. Will this give broker-dealers an unfair advantage?

The SEC has 270  days from the signing of the bill to draft the rules. At the same time both FINRA and the Crowdfunding Leadership Group need to position themselves to be the ultimate self-regulatory organization for crowdfunding in the U.S.


©   Copyrighted 2012 by Sharon M. Davison. Reuse permitted with attribution.


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