CFIRA Offers Proposals for Crowdfunding Portals to FINRA

Scott Purcell

Cincinnati, Ohio – December 6, 2012 - The Crowdfund Intermediary Regulatory Advocates (CFIRA), a leading industry organization fostering implementation of equity crowdfunding under the JOBS Act, offered proposals today to the Financial Industry Regulatory Authority on how Broker-Dealers and Registered Crowdfunding Portals can implement crowdfunding and possibly work cooperatively in this new emerging industry. The Financial Industry Regulatory Authority is the largest independent regulator for all securities firms doing business in the United States.

In a letter authored by CFIRA Board Member Scott Purcell of Arctic Island, CFIRA recommended the following:

1.  Crowdfunding should be viewed as just another type of exempt private placement, and that broker-dealers who are approved for private placement business would need no distinct requirements for crowdfunding, which would be considered a form of private placement. “CFIRA suggests that FINRA implement a simplified process equivalent to the 10-day review and approval procedures utilized by the Advertising Regulation Department to assess the proposed web screens for compliance with Title III investor education mandates, offering disclosure templates, and other required elements for crowdfunding,” Mr. Purcell wrote.

2.  CIFRA recommended a two step approach to regulate a registered portal: (1) FINRA is comfortable with management of the registered portal and that the systems and design of the portal prior to operation complies with Title III in all respects and (1) FINRA monitors the activity of the Registered Portal to ensure that the portals’ operations do not deviate from the pre-approved operations.

3.  CFIRA recommends that registered portals be able to charge issurer fees and other compensation so as to be profitable and be able to maintain ongoing operations. All fees should be charged in accordance with industry Best Practices and FINA rules, including NASD Notice to Members 92-53. “As we have recommended previously, our view regarding compensation that a Registered Portal may charge for use of its platform should be (a) consistent with the historic calculations used in conneciton with establishing ‘fair and reasonable’ remuneration and (b) consistent with industry norms and Best Practices as well as those relating to non-securities based, donors, rewards, advertising and perks-based Crowdfunding being conducted today,” Mr. Purcell added.

“We believe it is inevitable that BD’s and RP’s will work together or interact as the industry develops and matures, wrote Mr. Purcell. “Therefore, rules that foster and guide working relationships and fee arrangements consistent with the JOBS Act and their respective registration capacity (BD vs RP) – rather than simply prohibit such arrangements – will yield greater regulatory compliance and control.”

The entire letter can be reviewed below.
Registered Portal and Broker-Dealer Operating MEchanics & Working Relationshiops
Feature photograph (c) by Gunnar3000 under license. All rights reserved.

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