On October 18, the U.S. Securities and Exchange Commission (SEC) announced the launch of the agency’s Strategic Hub for Innovation and Financial Technology (FinHub). But what is the “FinHub”?
[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.
Title III of the Jumpstart Our Business Startups (JOBS) Act, enacted in 2012, provides guidance and regulation relating to securities offered or sold through crowdfunding activities. In 2015, the Securities and Exchange Commission (SEC) added onto this initial act by creating a new ruleset that implemented a regulatory framework for intermediaries that facilitate such crowdfunding transactions. This includes regulations for a relatively new intermediary: the funding portal. Securities Act Section 4(a)(6) (otherwise known as “Regulation CF”) requires that intermediaries in crowdfunding transactions be registered with the SEC as either a broker-dealer or a funding portal.
[Continued from Regulation Crowdfunding – Part I]
Crowdfunding Requirements for Intermediaries
The following requirements apply to both broker-dealers and funding portals acting as an intermediary in a transaction involving the sales of securities pursuant to Regulation Crowdfunding (“Regulation CF”):
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- Register with the SEC as a broker or as a funding portal.
- Register with a self-regulatory organization (“SRO”); the only eligible SRO at present being FINRA.
On October 30, 2015, the Securities and Exchange Commission (the “SEC”) voted to adopt Regulation Crowdfunding (“Regulation CF”) under the provisions of Title III of the JOBS Act of 2012 (the “JOBS Act”). The final rules adopted under Regulation CF became effective on May 16, 2016, with entities wishing to act as broker-dealers or “crowdfunding portals” for such offerings starting the application process with the Financial Industry Regulatory Authority, Inc. (“FINRA”) as early as the end of January.