Sharon M. Davison

Archive for July, 2012|Monthly archive page

FINRA Tackles Crowdfunding

In Broker-Dealers, Crowdfunding, FINRA, Intermediaries, Portals, SEC on July 9, 2012 at 5:35 pm

While the summer overheated the whole country and the SEC was telling Congress that they would be late on the rules that they are required to write under the JOBS Act, FINRA issued a notice, Regulatory Notice 12-34, Jumpstart Our Business Startups Act: FINRA Requests Comment on Proposed Regulation of Crowdfunding Activities.

I must admit this was a surprise. Everyone I know who cares about the JOBS Act was fully expecting FINRA to issues rules on the interaction of investment bankers and research analysts. The FINRA rules on this are in violation of the mandate in the JOBS Act to not have any rules that do not allow research analysts to among other things participate in road shows for “emerging growth companies”. Also while it was assumed that FINRA would be the self-regulatory agency for crowdfunding without a clear mandate from the SEC it was not clear that the final decision had been made. In Notice 12-34, FINRA clearly states that they have been in conversation with the SEC and it was suggested that FINRA write its own crowdfunding rules separate and apart from the SEC.

This development could work to the advantage of crowdfunding platforms. There has been a fear that given the SEC’s backlog in rule making stemming from Dowd-Frank and now the JOBS Act, that crowdfunding would get pushed well into 2013. But if FINRA is already working on its rules then even if the SEC misses its deadline and the rules do not come out until the later part of the first quarter of 2013 FINRA will already be a long way towards completion of its rules.

Also this notice is the first indication of where regulators might be headed with respect to intermediary regulation. In Notice 12-34, FINRA states that it is writing “new” rules for funding portals and reviewing “existing” rules for broker-dealers. The issues for each are also different. Comments are requested in the following areas:

Funding Portals:

  1. Supervision
  2. Advertising
  3. Anti-money laundering
  4. Fraud and manipulation
  5. Just and equitable principles of trade


  1. Relaxing existing rules for crowdfunding activities
  2. Isolate crowdfunding activities from other activities
  3. Implement the limitation on crowdfunding similar to funding portals
  4. Special conflicts, such as a registered representative referring a client to the crowdfunding portal of the broker-dealer

Comments must be received no later than August 31, 2012. Let me know some of your ideas on funding portals and broker-dealer regulation.

© Copyrighted 2012 by Sharon M. Davison. May be reused with attribution.