More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
FINRA issued on Thursday a voluntary Interim Form for Funding Portals designed for prospective crowdfunding portals under the JOBS Act.
Those intending to become a funding portal may voluntarily submit information regarding their business on the interim form. FINRA says the information received will help it develop rules specific to crowdfunding portals.
In applying for membership, crowdfunding portals will not be bound by the responses provided on the interim form, FINRA states, as once the SEC and FINRA have adopted funding portal rules, FINRA will issue a final funding portal application for FINRA regulation.
FINRA and the SEC are “engaging in an open dialogue” about the rules that should apply to funding portals.
“FINRA is committed to ensuring that the capital-raising objectives of the JOBS Act are advanced in a manner consistent with congressional intent and investor protection,” said Thomas Selman, executive vice president, Regulatory Policy at FINRA. “Crowdfunding portals that file this form will provide FINRA with important information regarding portal business models, which will inform our rulemaking.”
The Interim Form asks prospective funding portals to provide information including:
- management; and
- business model and relationships.
FINRA says that it’s also asking prospective funding portals to supplement the information in the interim form with any additional information or documents that they believe would be helpful. FINRA will treat information that prospective portals file on the interim form as confidential.
The North American Securities Administrators Association (NASAA) fired off a warning in early December about a surge in crowdfunding domains on the Internet.
An analysis of Internet domain names by state and Canadian securities regulators found nearly 8,800 domains with “crowdfunding” in their name as of Nov. 30, 2012, up from less than 900 at the beginning of the year. Of these websites, about 2,000 contained content, more than 3,700 had no content and more than 3,000 appeared to be “parked” and serving as placeholders to reserve a domain name for later use or sale, NASAA says. Of the domains with “crowdfunding” in their name, about 6,800 have appeared since April 2012 when the JOBS Act was signed into law.
Last year, FINRA solicited comments on the specific rules it should adopt for registered funding portals that become FINRA members. FINRA has also asked for comment on the application of existing rules to broker-dealers engaging in crowdfunding activities.