FINRA Proposes Amendments to the Funding Portal Rules

The Financial Industry Regulatory Authority, Inc. (“FINRA”) has  filed with the Securities and Exchange Commission (“SEC”) a proposed rule change to adopt Funding Portal Rules 100, 110, 200, 300, 800, 900 and 1200 (collectively, the “Funding Portal Rules”) and related forms. In addition, as part of the proposed rule change, FINRA proposes to adopt new FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act) in the FINRA rulebook.

Title III of the Jumpstart Our Business Startups (JOBS) Act, enacted in 2012, with the goal of increasing American job creation and economic growth, contains key provisions relating to securities offered or sold through ‘‘crowdfunding.’’

Under Section 302 of the JOBS Act, a crowdfunding intermediary that engages in crowdfunding on behalf of issuers  relying on the JOBS Act’s ‘‘crowdfunding exemption” is required to register with the SEC as a “funding portal” or broker and to register with an applicable self-regulatory organization.

In October 2013, the SEC proposed Regulation Crowdfunding to require registration of funding portals and to implement the provisions of Title III of the JOBS Act.

Prospective funding portal operators have stated that they intend to register with the SEC pursuant to Regulation Crowdfunding if adopted by the SEC and to apply for FINRA membership.  FINRA has streamlined the proposed rules to reflect the limited scope of activity permitted by funding portals while also maintaining investor protection. FINRA has written the rules specifically for funding portals.

As of today, FINRA is not requiring funding portal members to maintain fidelity bond coverage or to implement a written anti-money laundering program.  As set forth in the filing, FINRA’s proposed portal rules consist of a set of seven rules and related forms.  In addition, FINRA is proposing to adopt new FINRA Rule 4518 ( Notification to FINRA in Connection with the JOBS Act) in the FINRA rulebook. New FINRA Rule 4518 would apply to registered broker members.

For the full text of proposed rule amendment and the new rule, see SR-FINRA-2015-040.