Sharon M. Davison

Archive for the ‘FINRA’ Category

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.


I am back

In Crowdfunding, FINRA, Intermediaries, SEC on November 25, 2015 at 12:21 pm

The most interesting thing about being back two years since my last post is that we are still reviewing the FINRA and SEC proposals for crowdfunding. However, also interesting is the growth in accredited investor crowdfunding. I think the crowdfunding wave is with the accredited investors. I also think that hedge funds and other private funds are just at the edge of jumping into the ocean.

Back and Moving On

In Broker-Dealers, Crowdfunding, FINRA, Portals, SEC on May 21, 2013 at 1:23 pm

I have been missing in action while I settled into my new law firm. Crowdfunding LawBlog is going to take a rest. Continue to follow my Twitter list on Crowdfunding. For information on broker-dealers and crowdfunding follow Broker Dealings: A Broker-Dealer Law Blog.

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.