Funding Portal Guide for Title III Equity Crowdfunding
In order to operate, a crowdfunding service intermediary is required to register with the Securities and Exchange Commission (SEC) either as a broker or funding portal. Funding portals are designed to be engaged in managing securities transactions for the accounts of others through an independent crowdfunding website. This article is provided as a compliance guide for such funding portals relying on Title III Equity Crowdfunding.
Funding Portal Registration
Pursuant to crowdfunding regulations recently set forth by the SEC, funding portals are required to register with the SEC. Portals are eligible to register beginning January 29, 2016, but are prohibited from engaging in any form of crowdfunding activities prior to May 16, 2016.
All registered funding portals are also required to become a member of a national securities association that is registered under Section 15A of the Exchange Act, however, at this time, only the Financial Industry Regulatory Authority (FINRA) is registered.
Register with the SEC
Before you register with the SEC, ensure that you reserve an entity name with FINRA so it?s not identical to an existing member's firm name. To do so, complete the Firm Name Reservation Request Form on FINRA's website.
File Form ID
Prior to registering with the SEC, funding portals will need to first file a Form ID through the SEC?s EDGAR system. The Form ID is used to request the following EDGAR access codes: Central Index Key (CIK), CIK Confirmation Code (CCC), Password (PW), and Password Modification Authorization Code (PMAC). EDGAR codes are used to submit form filings to the SEC. The Form ID has been amended to include ?Funding Portal? as a filer type, and the instructions will be modified to include the definition of a funding portal as well. Colonial can submit your Form ID application for you. For more information, visit our Form ID filing page or contact us.
File Form Funding Portal
After your Form ID application has been processed and accepted, and you have received your codes, you can officially register with the SEC by filing the Form Funding Portal. The Form Funding Portal is an application used to register a business as an authorized funding portal. The form requires information regarding the funding portal?s respective business, principals, control relationship, and their employees. The SEC has created three form types for the Form Funding Portal:
- CFPortal: The Form CFPortal is the initial application to register as a?funding portal?with the?SEC. The final SEC rulings permitted funding portals to also file PDF exhibits and attachments via EDGAR. Download the Form CFPortal
- CFPortal/A: The Form CFPortal/A is the amendment to any part of the?funding portal's most recent Form Funding Portal, including a?successor?registration. An amendment is required within 30 days of when the information submitted on the form becomes inaccurate for some reason.Download the Form CFPortal/A
- CFPortal-W: The Form CFPortal is the withdrawal of the funding portal's registration with the?SEC. A funding portal must promplty file the withdrawal, which will be effective 30 days after receipt by the SEC and the portal is no longer operational.Download the Form CFPortal-W
Your registration will become effective either 30 days after registration is received by the Commission, or after your funding portal has been approved for membership by FINRA. After your registration becomes effective, the information that is found on Form Funding Portal will be made available to the public via EDGAR, except for certain personally identifiable information or information with a potential for misuse. Colonial can file your Form Funding Portal forms for you. Please contact us to learn more.
Become a Member of FINRA
The SEC file number assigned to your funding portal is the number that allows you to gain access to the FINRA Entitlement program. Through the Entitlement program your funding portal will designate a Super Account Administrator. The Super Account Administrator (SAA) will be authorized to create, modify, and delete any account administrator and user accounts, as well as being held responsible for maintaining accounts. Only one SAA may be designated per account.
To designate an SAA, you must first complete the New Funding Portal Organization Super Account Administrator Entitlement Form. The signer of this form is required to be an Authorized Signatory of the company. After your form has been processed by FINRA, an SAA account will be created and a confirmatory email sent to both the Authorized Signatory, and the SAA, including your funding portals Organization ID#.
In order to replace or update your SAA, an Authorized Signatory must contact the FINRA Call Center (801-590-6500) and request an Update/Replace Funding Portal Organization SAA Form.
After designating an SAA, you must generally submit fingerprints for each partner, director, officer, or employee of your funding portal compliant to SEA Rule 17f-2. Your fingerprints need to include your portals Organization ID#.
If your funding portal needs to apply for an exemption under Rule 17f-2, contact Tom Etter, Division of Market Regulation of the Securities and Exchange commission at (202) 551-5713.
Fingerprint cards can be either purchased and mailed or submitted electronically. Using the Electronic Fingerprint Submission Program is much faster and requires no postage fees and lower processing fees for the fingerprint submissions.
FINRA will then submit fingerprints to the FBI and these results will be automatically updated.
Application fees will only be accepted if wired directly to FINRA. Each funding portal application fee is $2,700.
More information about the application fees for funding portals can be found at //www.finra.org/industry/fp-how-to-apply.
After completing all previous steps, you must submit Form FP-NMA, which provides information about your funding portal.
After submitting the completed application, FINRA will review it within 60 days. FINRA may conduct one or more membership interviews. If an application is withdrawn within 14 days, the application fee will be refunded.
After becoming a member of FINRA, FINRA will continue to provide ongoing surveillance of your funding portal as well as making an examination within the first 12 months of becoming a member, and at least once every four years thereafter.
SEC Limitations on Funding Portals
The JOBS Act has placed several restrictions on what a funding portal is eligible to do. Funding portals are not allowed to:
- Provide any investment advice or make any recommendations to issuers or companies
- Manage, process, hold, or provide any similar function for investor funds or securities
- Provide payment for any employees, agents, etc. for solicitation based on securities that are referenced on their respective website
- Violate any other regulations the SEC has determined regarding crowdfunding and funding portals
Both broker deals and funding portals are prohibited from:
- Allowing directors, officers, partners, etc. to have financial interests in any issuer that the intermediary is currently providing services to
- Provide personal identifying information for any respective investor as compensation to promoters, finders, generators, etc.
Other Information and Allowances for Funding Portals
Here is some additional information about Funding Portal requirements and allowances set forth by the SEC.
- Funding portals are exempt from the requirement to register as a broker or dealer under the Exchange Act Section 15(a).
- Funding portals may provide search functions through their platforms, however these search functions may not provide any advice about investing.
- A funding portal may compensate a third party for referring a person, if the third party has not given the funding portal any personally identifiable information about the investor or compensation involved.
- A funding portal may provide compensation to a registered broker or dealer.
- Funding portals can only provide communication channels for investors and the representatives of the issuer to determine guidelines and remove any fraudulent activity.
- Portals are prohibited from soliciting purchases, sales, and offerings through displays on their website. Even placing an ?offering of the day? or prominently displaying offerings on a web page is considered a violation.
- Funding portals may earn commissions, but are limited in raising capital beyond that.
- Portals are required to conduct a background check as well as a securities regulatory history check on each issuer and any managers, officers, or 20% beneficial owners.
- Before allowing any investor to to make a commitment, the portal must have a reasonable belief that the investor is qualified under the investment limitations of the Securities Act Section 4(a)(6)(B) and Regulation Crowdfunding.
- For every potential investor, the portal must provide educational materials about crowdfunding. These include but are not limited to basic terms about crowdfunding, limitations on investment amounts, the restrictions on resale, how an investment can be canceled and more.
As an SEC registered transfer agent and SEC filings provider, Colonial can be relied on by Funding Portals for their crowdfunding compliance needs. Here are some of the benefits of partnering with us:
- As a professional stock transfer and SEC filing agent, Colonial can handle all of your transfer agent and SEC filings under one umbrella, making it easy for your companies to stay compliant with the SEC.
- Having a third-party partnership with a transfer agent will provide funding portals, issuers, and investors peace of mind, knowing that an independent professional transfer agent that has been in business for nearly 30 years is managing their stock.
- Electronic/book-entry shares allow issuers to save significantly on startup and on-going shipping and processing fees with the elimination of physical stock certificates.
- Issuers can rely on the safe harbor exemption when they engage Colonial as a transfer agent, limiting potential liability.
Learn more or obtain a quote by contacting us at the top of the page.
View the final crowdfunding rule 33-9974.
Published: May 3, 2016
Author: Dan Carter