FINRA Proposes Funding Portal Rules with Related Forms

FINRA proposed the adoption of Funding Portal Rules 100, 110, 200, 300, 800, 900 and 1200 (collectively, the “Funding Portal Rules”) and related forms. The new rules were promulgated pursuant to the 2012 JOBS Act which “prohibits funding portals from a variety of activities, including offering investment advice or recommendations, soliciting transactions for securities displayed on their websites, compensating employees for securities solicitations, and holding investor funds or securities.” As part of its plan, FINRA also proposed the adoption of new FINRA Rule 4518 (“Notification to FINRA in Connection with the JOBS Act“) in the FINRA rulebook.

The proposed Funding Portal Rules consist of the following set of seven rules and their related forms:

  • Funding Portal Rule 100 (“General Standards”);
  • Funding Portal Rule 110 and Forms (“Funding Portal Application”);
  • Funding Portal Rule 200 (“Conduct”);
  • Funding Portal Rule 300 (“Compliance”);
  • Funding Portal Rule 800 (“Investigations and Sanctions”);
  • Funding Portal Rule 900 (“Code of Procedure”); and
  • Funding Portal Rule 1200 (“Arbitration and Mediation”).

FINRA’s proposed Rule 4518 would apply to registered broker members and also would provide that a member of FINRA should notify it in the manner prescribed by FINRA:

  • prior to engaging, for the first time, in a transaction involving the offer or sale of securities in reliance on Section 4(a)(6) (“Exempted Transactions”) of the Securities Act; or
  • within 30 days of directly or indirectly controlling, or being controlled by or under common control with, a funding portal as defined pursuant to Rule 300(c)(2) of the SEC’s proposed crowdfunding regulations.

In a related filing, FINRA proposed a rule change to adopt Section 15 of Schedule A to the FINRA By-Laws, which would govern fees for funding portals.

Lofchie Comment: The new rules are less burdensome than those that were proposed originally.