Crowdfunding: Funding Portal Registration – Part II

[Continued from Crowdfunding: Funding Portal Registration – Part I]

Funding Portal Registration Process

Firms seeking to register as funding portals must do so via completion of an application process with FINRA.  The registration process for a funding portal is similar to, but much less comprehensive and exhaustive, the New Member Registration process completed by applicants wishing to become broker-dealers.

After reserving their name with FINRA through the name reservation process, a firm must complete the SEC’s Form Funding Portal and submit the same via the Electronic Data Gathering, Analysis, and Retrieval (EGDAR) System.  The SEC will then assign a SEC file number that is required to gain access to the FINRA Entitlement Program.

Each funding portal firm must designate a Super Account Administrator by completing the New Funding Portal Organization Super Account Administrator (SAA) Entitlement Form. Once entitlement is received from FINRA, a firm must pay the applicable application fee and complete FINRA’s Form FP-NMA, the new member application for funding portals.

Once the application fee payment is verified and the application is submitted, FINRA staff will review and evaluate the application within 14 days to determine if it is complete.  Applicants should note that, during this 14-day period, FINRA may request additional information or documents necessary to render a decision on the application. The applicant must file the requested information or documents within 14 days after FINRA serves the request. Moreover, FINRA may serve subsequent requests for additional information or documents during the application process, which the applicant must respond to within 7 days.

In addition, during the application process, FINRA may, and likely will, request for a “Membership Interview” to be conducted with the applicant and its officers/directors.  During this Membership Interview, the qualifications and experience of the principals will be discussed, as well as the proposed business and operations.  The Membership Interview may be conducted via teleconference or other means as determined by FINRA.

Within 60 days after the filing of the application or such later date as FINRA and the applicant agree, FINRA must issue a written decision on the application. If the application is denied, the decision shall explain in detail the reason for denial, referencing the applicable standard or standards not deemed to be met.

Funding Portals and FINRA Compliance

Funding Portal members are subject to FINRA regulatory oversight and reporting requirements. FINRA regularly examines Funding Portal members to determine compliance with both SEC and FINRA requirements, including the establishment and maintenance of a supervisory system. A funding portal member’s supervisory system must include, at a minimum, for the following:

  • the establishment and maintenance of written procedures to supervise the activities of the funding portal member and its associated persons;
  • the designation of a person with authority to carry out the supervisory responsibilities of the funding portal member; and
  • reasonable efforts to determine that all supervisory personnel are qualified by virtue of experience or training to carry out their assigned responsibilities.

Furthermore, FINRA conducts an examination of each funding portal within 12 months of registration, then at least once every 4 years thereafter.

In addition to the above, FINRA Funding Portal Rule 300(c) requires funding portal members to report to FINRA regulatory proceedings, disciplinary measures, and other events. Funding portal members must use the Funding Portal Rule 300(c) Form for their reporting requirements.

Additional Information

More information on the process of registering as a funding portal, such as creating an EDGAR profile, is available at the SEC website. For a more general overview of regulation crowdfunding, our previous blogs on the subject may be consulted.

Short URL: http://bit.ly/2s7ihj8