FINRA Proposes Crowdfunding Portal Rules and Related Forms

by Holland & Knight LLP

On October 23, 2013, the Financial Industry Regulatory Authority (FINRA) issued proposed rules and forms regarding crowdfunding through funding portals. The proposed rules, which reflect rules recently proposed by the SEC, are generally more simplified versions of the current rules governing FINRA members.

General Standards

Proposed Funding Portal Rule 100 provides that FINRA By-Laws and Funding Portal Rules apply to all funding portal members, including both the funding portal and all "associated persons." This rule also modifies certain definitions to apply to funding portal members.

Funding Portal Application

Proposed Funding Portal Rule 110(a) sets forth a membership application process for funding portals. The rule is a simplified version of the current National Association of Securities Dealers (NASD) Rule 1010 Series membership rules for broker-dealers.

As compared to the rules for broker-dealers, the proposed Funding Portal Rule 110(a):

  • shortens the timeframes for key events; for example, the timeframe for the Department of Member Regulation to approve or deny a funding portal membership application process (MAP) form is 60 days, as opposed to 180 days for broker-dealers
  • streamlines and consolidates the standards for granting or denying an application (from 14 standards to 5 standards); the five standards address a portal’s (1) ability to comply with the applicable federal securities laws, rules and regulations, and FINRA’s Funding Portal Rules; (2) contractual or other arrangements and business relationships necessary to initiate operations; (3) supervisory system; (4) direct and indirect funding sources; and (5) recordkeeping system
  • provides that the membership interview may be conducted by videoconference or other means as FINRA may specify
  • streamlines the process for appealing a denial of a MAP application by reducing applicable filing and response timeframes from 25 days to 14 days and eliminating provisions for an appeals hearing
  • narrows the changes in ownership or control for which a funding portal member would be required to apply for approval

The proposed forms for funding portals require significantly less information than their counterpart broker-dealer forms.

Funding Portal Conduct

Proposed Funding Portal Rule 200(a) requires a funding portal member to observe high standards of commercial honor as well as just and equitable principles of trade. The rule is based in large part on FINRA Rule 2010.

Proposed Funding Rule 200(b) prohibits a funding portal member from effecting any transaction in, or inducing the purchase or sale of, any security by means of, or aiding and abetting, any manipulative, deceptive or other fraudulent device or contrivance. The rule is based in large part on FINRA Rule 2020.

Proposed Funding Portal Rule 200(c) essentially prohibits false and misleading statements and is an abbreviated version of FINRA Rule 2210.

Funding Portal Compliance

Under proposed Funding Portal Rule 300(a), a funding portal member will be required to establish and maintain a system to supervise activities of associated persons. It must be reasonably designed so as to maintain compliance with applicable securities laws, regulations and the Funding Portal Rules. This is a streamlined version of current NASD rules regarding supervision (NASD Rule 3010).

Proposed Funding Portal Rule 300(b) contains anti-money laundering (AML) provisions consistent with the SEC’s proposed requirements and Chapter X Title 31 of the Code of Federal Regulations. The proposed rule requires funding portals to maintain a written AML program; however, the proposed rule permits funding portals to conduct the required independent testing for compliance every two years, as compared with the annual testing requirement stipulated in FINRA Rule 3310.

Proposed Funding Portal Rule 300(c) requires funding portal members (and associated persons) to report to FINRA (or to the member) regulatory proceedings, disciplinary and other events using Funding Portal Rule 300(c) Form.

Proposed Funding Portal Rule 300(d) requires funding portal members to report to FINRA all contact information required by FINRA through such means as FINRA may specify and to promptly update their required contact information.

Investigations and Sanctions

Proposed Funding Portal Rule 800(a) would subject funding portal members to FINRA rules regarding investigations and sanctions (FINRA Rule 8000 Series) unless the context requires otherwise. FINRA has the obligation to make available to the public any information filed by a funding portal member indicated whether the funding portal member or any associated person of the funding portal is subject to statutory disqualification.

Arbitration and Mediation: Funding Portal Rule 1200

Proposed Funding Portal Rule 1200(a) subjects funding portal members to FINRA code of arbitration procedures for customer disputes (FINRA Rule 12000 Series), FINRA code of arbitration procedures for industry disputes (FINRA Rule 13000 Series), and FINRA code of mediation procedures (FINRA Rule 14000 Series), unless the context requires otherwise.

Paragraph (b) of the proposed rule is a simplified version of FINRA Rule 2268, which addresses the use of pre-dispute arbitration agreements for customer agreements. The comment period on the proposed rules expires February 3, 2014.

Regulatory Notice:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Holland & Knight LLP | Attorney Advertising

Written by:

Holland & Knight LLP

Holland & Knight LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.