The SEC is beginning to consider future, customized regulation of funding portals pursuant to the JOBS Act. Some commentators suggest that work on regulating funding portals “may illuminate potential ‘customized’ registration regimes for other firms and individuals that function in a limited broker-dealer capacity,” for example finders. As a result, funding portals are required to register with the SEC and the FIRA, but will be subject to a simplified registration regime.
Currently, Title III of the JOBS Act requires the SEC to exempt “an intermediary operating a funding portal from the requirement to register with the SEC as a broker.” The intermediary is, however, required to register as a funding portal and is therefore “subject to the SEC’s examination, enforcement, and rulemaking authority.” Funding portals are allowed to act as intermediaries to facilitate crowdfunded offerings.
Funding portals exist when a crowdfunding intermediary does not offer investment advice, solicit sales or offer to buy securities. The intermediary must not compensate any agents based on the sale of securities, or manage investor funds. Upon registration with the SEC, a funding portal will be subject to any other limitations on activities that the SEC deems appropriate.
Commentators are requesting more regulation and guidance from the SEC in the area of funding portals. A specific area of confusion is whether finders must register as broker-dealers. In SEC v. Kramer, the court made a distinction between finders and brokers, but the unique facts of the case limit its precedential value. In order to limit unregistered broker-dealer activity, the SEC should set out more specific, customized regulations of funding portals.