[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Notices]
[Pages 66348-66370]
[FR Doc No: 2015-27370]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76239; File No. SR-FINRA-2015-040]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt
the Funding Portal Rules and Related Forms and FINRA Rule 4518

October 22, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 9, 2015, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been substantially prepared by
FINRA. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to adopt Funding Portal Rules 100, 110, 200,
300, 800, 900 and 1200 (collectively, the ``Funding Portal Rules'') and
related forms. In addition, as part of the proposed rule change, FINRA
proposes to adopt new FINRA Rule 4518 (Notification to FINRA in
Connection with the JOBS Act) in the FINRA rulebook.
    The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Title III of the Jumpstart Our Business Startups (``JOBS'') Act,\3\
enacted in 2012 with the goal of increasing American job creation and
economic growth, contains key provisions relating to securities offered
or sold through ``crowdfunding.'' \4\ Under Section 302 of the JOBS
Act, a crowdfunding intermediary that engages in crowdfunding on behalf
of issuers relying on the JOBS Act's ``crowdfunding exemption'' \5\ is
required to register with the SEC as a ``funding portal'' \6\ or broker
and to register with an applicable self-regulatory organization.\7\
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    \3\ Pub. L. 112-106, 126 Stat. 306 (2012).
    \4\ Crowdfunding generally refers to the use of the Internet by
small businesses to raise capital through limited investments from a
large number of investors.
    \5\ See new Section 4(a)(6) of the Securities Act of 1933 (the
``Securities Act'') (15 U.S.C. 77d(a)(6)), as amended by the JOBS
Act. The crowdfunding exemption creates an exemption from
registration under the Securities Act for securities offered by
issuers pursuant to Title III of the JOBS Act.
    \6\ Section 3(a)(80) of the Act (15 U.S.C. 78c(a)(80)), as
amended by Title III of the JOBS Act, provides that the term
``funding portal'' means any person acting as an intermediary in a
transaction involving the offer or sale of securities for the
account of others, solely pursuant to Securities Act Section 4(a)(6)
(15 U.S.C. 77d(a)(6)), that does not: (1) offer investment advice or
recommendations; (2) solicit purchases, sales, or offers to buy the
securities offered or displayed on its Web site or portal; (3)
compensate employees, agents, or other persons for such solicitation
or based on the sale of securities displayed or referenced on its
Web site or portal; (4) hold, manage, possess, or otherwise handle
investor funds or securities; or (5) engage in such other activities
as the Commission, by rule, determines appropriate. (The JOBS Act
inadvertently created two Sections 3(a)(80) in the Act, the other
being the definition of ``emerging growth company,'' added by
Section 101(b) of Title I of the JOBS Act. All references in this
filing to Section 3(a)(80) of the Act are to the definition of
``funding portal'' under Title III of the JOBS Act.)
    \7\ See Sections 4A(a)(1) and (2) of the Securities Act (15
U.S.C. 77d-1(a)(1) and (2)).
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    In October 2013, the SEC proposed Regulation Crowdfunding to
require registration of funding portals and to implement the provisions
of Title III of the JOBS Act.\8\ Prospective funding portal operators
have stated that they intend to register with the SEC pursuant to
Regulation Crowdfunding if adopted by the SEC and to apply for FINRA
membership. Section 3(h)(2) of the Act,\9\ as amended by the JOBS Act,
requires that FINRA only examine for and enforce against registered
funding portals rules that FINRA has written specifically for
registered funding portals. Further, FINRA has stated that its
rulemaking would be informed by the SEC's rulemaking.\10\ Accordingly,
FINRA is proposing the Funding Portal Rules and related forms that
would apply to SEC-registered funding portals that become FINRA members
pursuant to the JOBS Act and the SEC's Regulation Crowdfunding. The
proposed Funding Portal Rules reflect Regulation Crowdfunding as
proposed by the SEC and would implement, under FINRA rules, the
provisions of Title III of the JOBS Act. FINRA has streamlined the
proposed rules to reflect the limited scope of activity permitted by
funding portals \11\ while also maintaining investor protection. FINRA
has written the proposed rules specifically for funding portals.\12\
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    \8\ See Securities Exchange Act Release No. 70741 (October 23,
2013), 78 FR 66428 (November 5, 2013) (Crowdfunding; Proposed Rules)
(the ``Regulation Crowdfunding Proposal''). The SEC's proposed Rule
400(a) under Regulation Crowdfunding requires in part that a funding
portal must register with the Commission and become a member of
FINRA or any other applicable national securities association
registered under SEA Section 15A. FINRA is the only registered
national securities association.
    \9\ 15 U.S.C. 78c(h)(2).
    \10\ See Securities Exchange Act Release No. 68633 (January 11,
2013), 78 FR 4186 (January 18, 2013) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Adopt Interim Form for
Funding Portals Under the Jumpstart Our Business Startups Act; File
No. SR-FINRA-2013-005).
    \11\ See note 6 supra. Proposed Rule 300(c)(2) under Regulation
Crowdfunding reflects the definition of funding portal as set forth
in Section 3(a)(80) of the Act (15 U.S.C. 78c(a)(80)).
    \12\ FINRA also has submitted a companion filing to adopt
Section 15 of Schedule A to the FINRA By-Laws governing the fees for
funding portals that are FINRA members. See SR-FINRA-2015-041.
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    In developing the proposed Funding Portal Rules, FINRA has
considered comments that were received in response to Regulatory Notice
13-34 (October 2013) (FINRA Requests Comment on Proposed Funding Portal
Rules and Related Forms) (the ``Notice'').\13\ The proposed Funding
Portal Rules and forms as set forth in this filing are largely as
published in the Notice. FINRA has made clarifying revisions and a
number of additions to the proposal for administrative purposes.
Further, as discussed below, FINRA has revised the proposal vis-
[agrave]-vis the version published in the Notice to better align the
provisions governing the right to appeal and hearing under the proposed
membership application and eligibility rules with existing provisions
for broker-dealer members. In addition, FINRA is not proposing at this
time the proposed rule that would have required funding portal members
to maintain fidelity bond coverage.\14\ Further, FINRA is not proposing
at this time the rule that would have required funding portal members
to develop and implement a written anti-money laundering program.\15\
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    \13\ Comments are discussed in Item II.C of this filing.
    \14\ FINRA is monitoring the development of funding portal
business and will determine at a later time whether a rulemaking
with respect to fidelity bonds or other financial responsibility
requirements is merited. See also Item II.C.1 of this filing.
    \15\ Pursuant to the Bank Secrecy Act (``BSA'') (31 U.S.C. 5311,
et seq.) and implementing regulations thereunder (31 CFR Chapter X),
brokers and dealers in securities that are registered or required to
be registered with the Commission must among other things establish
and maintain an effective anti-money laundering program. The BSA and
implementing regulations thereunder do not apply to funding portals
at this time. See also Item II.C.2 of this filing.
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    As set forth in this filing, the proposed Funding Portal Rules
consist of a set of seven rules (Funding Portal Rules 100, 110, 200,
300, 800, 900 and 1200) and related forms (Form FP-NMA, Form FP-CMA,
Funding Portal Rule 300(c) Form, and Form FP-Statement of Revenue). In
addition, as part of the proposed rule change, FINRA is proposing to
adopt new FINRA Rule 4518 (Notification to FINRA in Connection with the
JOBS Act) in the FINRA rulebook. New FINRA Rule 4518 would apply to
registered broker members. The proposed requirements of the Funding
Portal Rules and related forms and FINRA Rule 4518 are set forth below.

A. Proposed Funding Portal Rule 100 (General Standards)

    Proposed Funding Portal Rule 100 (General Standards), similar to
the FINRA Rule 0100 Series, sets forth basic standards and definitions
for purposes of the Funding Portal Rules. Paragraph (a) under the rule
provides that all funding portal members and persons associated with
funding portal members shall be subject to the FINRA By-Laws and FINRA
Regulation By-Laws,\16\ unless the context requires otherwise, and the
Funding Portal Rules. The rule provides that persons associated with a
funding portal member shall have the same duties and obligations as a
funding portal member under the Funding Portal Rules. For purposes of
Section 1(a) of Article III of the FINRA By-Laws, the proposed rule
provides that a registered broker or dealer shall include a registered
funding portal.
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    \16\ FINRA has revised the proposed rule vis-[agrave]-vis the
version published in the Notice to add ``and FINRA Regulation By-
Laws'' to clarify that funding portal members will also be subject
to the FINRA Regulation By-Laws.
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    The proposed rule provides that the terms used in the Funding
Portal Rules, if defined in the FINRA By-Laws, shall have the meaning
as defined in the FINRA By-Laws, unless a term is

defined differently in a Funding Portal Rule, or unless the context of
the term within a Funding Portal Rule requires a different meaning.
    The proposed definitions contained in the rule are set forth under
paragraph (b). The proposed definitions are largely based on
definitions under current FINRA rules, modified as appropriate to apply
to funding portal members. The proposed rule provides that, when used
in the Funding Portal Rules, unless the context otherwise requires, the
terms below have the following meanings:
     Associated person of a funding portal member or person
associated with a funding portal member: The term ``associated person
of a funding portal member'' or ``person associated with a funding
portal member'' means any sole proprietor, partner, officer, director
or manager of a funding portal, or other natural person occupying a
similar status or performing similar functions, or any natural person
directly or indirectly controlling or controlled by a funding portal
member, or any employee of a funding portal member.
     By-Laws: The term ``By-Laws'' means the By-Laws of the
Corporation or the FINRA By-Laws.
     Exchange Act or SEA: The term ``Exchange Act'' or ``SEA''
means the Securities Exchange Act of 1934, as amended.
     FINRA: The term ``FINRA'' means, collectively, FINRA,
Inc., FINRA Regulation, Inc. and FINRA Dispute Resolution, Inc.
     Funding Portal: The term ``funding portal'' is as defined
pursuant to proposed Rule 300(c)(2) of SEC Regulation Crowdfunding.
     Funding Portal Member: The term ``funding portal member''
means any funding portal admitted to membership in FINRA.
     Funding Portal Rules: The term ``Funding Portal Rules''
means Funding Portal Rules 100 through 1200.
     Investor: The term ``investor'' does not include a broker,
dealer or funding portal.
     Person: The term ``person'' includes any natural person,
partnership, corporation, association, or other legal entity (provided,
however, that for purposes of the definition of associated person of a
funding portal member as set forth under the rule, the term ``person''
shall solely include a natural person).
     SEC: The term ``SEC'' means the Securities and Exchange
Commission.
     Securities Act: The term ``Securities Act'' means the
Securities Act of 1933, as amended.

B. Proposed Funding Portal Rule 110 (Funding Portal Application)

1. Proposed Funding Portal Rule 110(a) (Member Application Process)
    Proposed Funding Portal Rule 110(a) addresses the membership
application process (``MAP'') for funding portals (referred to in the
rule as ``FP Applicants''). The MAP will enable FINRA to assess whether
funding portals are capable of complying with applicable federal
securities laws, the rules and regulations thereunder, and the Funding
Portal Rules. The proposed rule is based on the current NASD Rule 1010
Series membership rules that apply to broker-dealers. However, as
discussed below, FINRA has simplified the MAP for funding portals to
reflect the limited nature of their business. The proposed rule
requirements are set forth below.

 Definitions (Proposed Funding Portal Rule 110(a)(1))

    Paragraph (a)(1) of the proposed rule sets forth a set of
definitions that apply solely for purposes of MAP. Specifically:
    [cir] Associated Person: The rule provides that, solely for
purposes of paragraph (a) of Funding Portal Rule 110, the term
``associated person'' means any: (1) Sole proprietor, partner, officer,
director or manager of a funding portal, or other natural person
occupying a similar status or performing similar functions; (2) natural
person directly or indirectly controlling or controlled by such funding
portal, or any employee of a funding portal, except that any person
associated with a funding portal whose functions are solely clerical or
ministerial shall not be included in the meaning of such term; or (3)
partnership, corporation, association, or other legal entity controlled
by or controlling the FP Applicant.
    [cir] FP Applicant: The term ``FP Applicant'' means a person that
applies for admission to FINRA as a funding portal member under
paragraph (a)(3) of Funding Portal Rule 110 or a funding portal member
that files an application for approval of a change in ownership or
control under paragraph (a)(4) of the rule.\17\
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    \17\ Proposed Funding Portal Rule 110(a)(3) and Rule 110(a)(4)
are discussed below.
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    [cir] Day: The term ``day'' means calendar day. The rule provides
that, solely for purposes of paragraph (a) of Funding Portal Rule 110,
in calculating a period of time, the day of the act (e.g., filing of
application, service of notice) from which the period of time
designated begins to run shall not be included, provided, however, that
where the last day of a period so calculated is a Saturday, Sunday or
day on which FINRA is otherwise closed, the period shall run until the
end of the next business day.\18\
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    \18\ As proposed in the Notice, the proposed definition of
``day'' for purposes of the MAP for funding portals did not address
situations where the last day of a period calculated is a Saturday,
Sunday or day on which FINRA is closed. FINRA has added this
language in the interest of clarity.
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    [cir] Department: The term ``Department'' means the Department of
Member Regulation of FINRA.
    [cir] District: The term ``district'' means a district established
by the FINRA Regulation Board.

 Service or Filing Date (Proposed Funding Portal Rule
110(a)(2))

    Proposed Funding Portal Rule 110(a)(2)(A) provides that FINRA shall
serve a notice or decision issued under paragraph (a) of the rule by
electronic delivery. Paragraph (a)(2)(B) of the rule provides that, for
purposes of Funding Portal Rule 110(a), service by FINRA or filing by
an FP Applicant shall be deemed complete on the date recorded by
FINRA's electronic systems for electronic communications or by other
means of verification prescribed by FINRA.

 Application To Be a Funding Portal Member (Proposed Funding
Portal Rule 110(a)(3))

    Proposed Funding Portal Rule 110(a)(3)(A) provides that an FP
Applicant for FINRA membership must submit its application to the
Department by filing a Form FP-NMA \19\ in the manner prescribed by
FINRA and an application fee. Proposed Funding Portal Rule 110(a)(3)(B)
provides that, at the time an FP Applicant for FINRA membership submits
its application pursuant to paragraph (a)(3)(A) of the rule, the FP
Applicant must submit information, in a format to be prescribed by
FINRA, indicating whether the FP Applicant or any associated person (as
defined in Funding Portal Rule 100(b)(1)) of the FP Applicant is
subject to an event described in Section 3(a)(39) of the Act.\20\ The
FP Applicant must keep this information current and must update such
information promptly, but

in any event not later than 10 days following any change in such
information.
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    \19\ Proposed Form FP-NMA is set forth in Exhibit 3a. FINRA has
modified the proposed form vis-[agrave]-vis the version published in
the Notice to reflect the removal of the proposed anti-money
laundering and fidelity bond requirements as had been set forth in
the Notice and to make other clarifications. Consistent with the
limited scope of business to be conducted by funding portals, the
proposed form requires significantly less information than the Form
NMA for broker-dealer applicants.
    \20\ 15 U.S.C. 78c(a)(39). Section 3(a)(39) of the Act sets
forth the definition of ``statutory disqualification.''

 Application for Approval of a Change in Ownership or Control
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(Proposed Funding Portal Rule 110(a)(4))

    Proposed Funding Portal Rule 110(a)(4)(A) provides that a funding
portal member must file an application for prior approval of any
change:
    [cir] in the equity ownership or partnership capital, LLC
membership interest, or other ownership interest of the funding portal
member that results in one person or entity directly or indirectly
owning or controlling 25 percent or more of the equity or partnership
capital, LLC membership interest, or other ownership interest; or
    [cir] of control persons of the funding portal member, other than
the appointment or election of a natural person as an officer or
director of the funding portal member in the normal course of business,
regardless of whether such change occurred as a result of a direct or
indirect change in the equity ownership, partnership capital, LLC
membership interest, or other ownership interest in the funding portal
member.
    Paragraph (a)(4)(B) of the rule provides that a funding portal
member must submit its application for prior approval of any of the
changes described in Funding Portal Rule 110(a)(4)(A) to the Department
by filing a Form FP-CMA \21\ in the manner prescribed by FINRA and an
application fee.
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    \21\ Proposed Form FP-CMA is set forth in Exhibit 3b. FINRA has
made clarifying revisions to the form vis-[agrave]-vis the version
published in the Notice. Consistent with the limited scope of
business to be conducted by funding portals, the proposed form
requires significantly less information than is required for broker-
dealer applicants.

 Rejection of Application That Is Not Complete (Proposed
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Funding Portal Rule 110(a)(5))

    Proposed Funding Portal Rule 110(a)(6) provides that, within 14
days after the filing of an application filed pursuant to paragraphs
(a)(3) or (a)(4) of the rule, the Department shall serve an initial
request for any additional information or documents necessary to render
a decision on the application, and the FP Applicant must file any
additional information and documents with the Department within 14 days
after service of the Department's initial request. The rule provides
that the Department may serve subsequent requests for additional
information or documents at any time during the membership application
process. Unless otherwise agreed by the Department and the FP
Applicant, the FP Applicant must file any additional information and
documents with the Department within seven days after service of any
subsequent request.

 Withdrawal of Application (Proposed Funding Portal Rule
110(a)(7))

    Proposed Funding Portal Rule 110(a)(7) provides that, if an FP
Applicant withdraws an application filed pursuant to paragraphs (a)(3)
or (a)(4) of the rule within 14 days after filing the application,
FINRA shall refund the application fee, less a processing fee which
shall be retained by FINRA. The rule provides that if the FP Applicant
determines to again seek funding portal membership or approval of a
change in ownership or control, the FP Applicant must submit a new
application and fee pursuant to paragraphs (a)(3) or (a)(4) of the
rule.

 Lapse of Application (Proposed Funding Portal Rule 110(a)(8))

    Proposed Funding Portal Rule 110(a)(8) is an addition to the
proposal vis-[agrave]-vis the proposed rules as published in the
Notice. The provision, based largely on NASD Rule 1012(b), is designed
to ensure that the provisions governing lapse of an application filed
pursuant to paragraphs (a)(3) or (a)(4) of the rule better align with
existing provisions for broker-dealer members, while also reflecting
the more streamlined application process provided for funding portal
members in light of their limited permissible activities and the
related shorter time frames in which the Department must act on an
application. Proposed Funding Portal Rule 110(a)(8)(A) provides that,
absent a showing of good cause, an application filed under paragraphs
(a)(3) or (a)(4) of the rule shall lapse if an FP Applicant fails to:
    [cir] Respond fully within 14 days after service of an initial
written request, or within seven days after service of a subsequent
written request, for information or documents under paragraph (a)(6) of
the rule, or within such other time period as agreed to by the
Department and the FP Applicant;
    [cir] appear at or otherwise participate in a scheduled membership
interview pursuant to paragraph (a)(9) of the rule, as discussed below;
or
    [cir] file an executed membership agreement under paragraph (a)(11)
of the rule, as discussed below, within seven days after service of the
agreement, or within such other period as agreed to by the Department
and the FP Applicant.
    Proposed Funding Portal Rule 110(a)(8)(B) provides that if an FP
Applicant wishes to again seek membership or approval of a change in
ownership or control subsequent to the lapse of an application pursuant
to paragraph (a)(8)(A) of this Rule, then the FP Applicant shall be
required to submit a new application in the manner prescribed in
paragraph (a)(3) or (a)(4) of the rule, respectively, including the
timely submission of an application fee pursuant to Schedule A to the
FINRA By-Laws. The rule provides that FINRA shall not refund any fee
for a lapsed application.

 Membership Interview (Proposed Funding Portal Rule 110(a)(9))

    Proposed Funding Portal Rule 110(a)(9)(A) provides that, before the
Department serves its decision on an application for new membership in
FINRA, the Department shall conduct one or more membership interviews
with a representative or representatives of the FP Applicant. The
membership interview(s) may be conducted by video conference or such
other means as FINRA may specify. Paragraph 110(a)(9)(B) of the rule
provides that, at least five days before a membership interview, the
Department shall serve on the FP Applicant a written notice that
specifies the date and time of the interview and the representative or
representatives of the FP Applicant who are required to participate in
the interview. The rule provides that the Department shall serve the
notice in a manner consistent with proposed Funding Portal Rule
110(a)(2). The rule further provides that the FP Applicant and the
Department may agree to a shorter or longer period for notice or a
different method of service. Paragraph 110(a)(9)(C) of the rule
provides that, unless the Department directs otherwise for good cause
shown, a membership interview shall be scheduled to occur within 30
days after the filing of an application or within 14 days after the
filing of all additional information or documents requested, whichever
is later.

 Standards for Granting or Denying Application (Proposed
Funding Portal Rule 110(a)(10))

    Proposed Funding Portal Rule 110(a)(10) provides that, after
considering an application filed pursuant to paragraphs (a)(3) or
(a)(4) of the rule, other information and documents provided by the FP
Applicant during the application process, other information and
documents obtained by the Department, and the public interest and the
protection of investors, the Department shall determine whether the FP

Applicant meets each of the following five standards, as applicable:
\22\
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    \22\ The five standards that FINRA is proposing are streamlined
and consolidated vis-[agrave]-vis the 14 standards that apply to
broker-dealer applications under NASD Rule 1014(a). FINRA believes
that the streamlined, consolidated approach is appropriate to
reflect the limited nature of funding portal business.
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    [cir] The FP Applicant and its associated persons are capable of
complying with applicable federal securities laws, the rules and
regulations thereunder, and the Funding Portal Rules, including
observing high standards of commercial honor and just and equitable
principles of trade. In determining whether this standard is met, the
Department shall take into consideration all information in its
possession, including information regarding whether an FP Applicant or
its associated persons: \23\
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    \23\ See proposed Funding Portal Rule 110(a)(10)(A) in Exhibit
5.
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    [rtarr8] is subject to an event described in Section 3(a)(39) of
the Exchange Act; and
    [rtarr8] is the subject of a pending, adjudicated, or settled
regulatory action or investigation by the SEC, the Commodity Futures
Trading Commission, a federal, state, or foreign regulatory agency, or
a self-regulatory organization; an adjudicated or settled investment-
related private civil action for damages or an injunction; or a
criminal action (other than a minor traffic violation) that is pending,
adjudicated, or that has resulted in a guilty or no contest plea of an
FP Applicant or its associated persons.
    [cir] The FP Applicant has established all contractual or other
arrangements and business relationships with banks, broker-dealers,
clearing corporations, service bureaus, escrow agents, transfer agents,
technology service providers, or others necessary to initiate the
operations described in the FP Applicant's Form FP-NMA.\24\
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    \24\ See proposed Funding Portal Rule 110(a)(10)(B) in Exhibit
5.
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    [cir] The FP Applicant has a supervisory system that is reasonably
designed to achieve compliance with applicable federal securities laws,
the rules and regulations thereunder, and the Funding Portal Rules.\25\
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    \25\ See proposed Funding Portal Rule 110(a)(10)(C) in Exhibit
5.
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    [cir] The FP Applicant has fully disclosed and established through
documentation all direct and indirect sources of funding.\26\
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    \26\ See proposed Funding Portal Rule 110(a)(10)(D) in Exhibit
5.
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    [cir] The FP Applicant has a recordkeeping system that enables the
FP Applicant to comply with federal, state, and self-regulatory
organization recordkeeping requirements.\27\
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    \27\ See proposed Funding Portal Rule 110(a)(10)(E) in Exhibit
5.

 Granting or Denying Application (Proposed Funding Portal Rule
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110(a)(11))

    Proposed Funding Portal Rule 110(a)(11)(A) provides that, if the
Department determines that the FP Applicant meets each of the
applicable standards in paragraph (a)(10) of the rule, the Department
shall grant the application filed pursuant to proposed Funding Portal
Rule 110(a)(3) or (a)(4). The rule provides that the FP Applicant's
approval for membership shall be contingent upon the FP Applicant's
filing of an executed written membership agreement. Paragraph
(a)(11)(B) of the rule provides that, if the Department determines that
the FP Applicant does not meet one or more of the applicable standards
in proposed Funding Portal Rule 110(a)(10), the Department shall deny
the application.

 Decision (Proposed Funding Portal Rule 110(a)(12))

    Proposed Funding Portal Rule 110(a)(12) provides that the
Department shall serve a written decision on the application filed
pursuant to paragraphs (a)(3) or (a)(4) of the rule within 60 days
after the filing of the application or such later date as the
Department and the FP Applicant have agreed in writing.\28\ The rule
provides that if the Department denies the application, the decision
shall explain in detail the reason for denial, referencing the
applicable standard or standards in paragraph (a)(10) of the rule. The
rule provides that a decision that denies the application shall become
effective upon service. The Department shall serve its decision and, as
applicable, the membership agreement on the FP Applicant in accordance
with paragraph (a)(2) of the rule.
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    \28\ The proposed 60 day time frame is shorter than the 180 day
time frame that applies to broker-dealer applicants under NASD Rule
1014(c). FINRA believes that the 60 day time frame for funding
portals is appropriate to reflect the limited nature of funding
portal business. The provision ``or such later date as the
Department and the FP Applicant have agreed in writing'' is an
addition to the proposal vis-[agrave]-vis the proposed rules as
published in the Notice and is intended, based in large part on NASD
Rule 1014(c), to better align the rule with existing provisions for
broker-dealer members. In addition, FINRA has made other conforming
revisions.

 Appeal of Department's Decision (Proposed Funding Portal Rule
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110(a)(13))

    Proposed Funding Portal Rule 110(a)(13) addresses an appeal of the
Department's decision. FINRA has revised the proposed rule vis-
[agrave]-vis the proposal as published in the Notice so that the appeal
process, based in large part on NASD Rules 1015 and 1016, better aligns
with existing provisions for broker-dealer applicants. As revised, the
proposed rule among other things: (1) Permits the FP Applicant to file
a written request for review of the Department's decision with the full
National Adjudicatory Council; (2) provides for the National
Adjudicatory Council or the Review Subcommittee as defined in FINRA
Rule 9120 to appoint a Subcommittee to participate in the review; (3)
allows either the FP Applicant to request or the Subcommittee to direct
a hearing: and (4) sets forth hearing procedures. In addition, FINRA
has made other conforming revisions. The specific requirements of the
proposed rule as revised are set forth below.

    [cir] Request for Review; Final Action

    Paragraph (a)(13)(A)(i) of the rule provides that, within 14 days
after service of a decision under paragraph (a)(12) of the rule, an FP
Applicant may file a written request for review with the National
Adjudicatory Council. A request for review must state with specificity
why the FP Applicant believes that the Department's decision is
inconsistent with the applicable standards set forth in paragraph
(a)(10) of the rule or otherwise should be set aside, and state whether
a hearing is requested. An FP Applicant may withdraw its notice of
appeal at any time by filing a written notice of withdrawal of appeal
with the National Adjudicatory Council. Paragraph (a)(13)(A)(ii) of the
rule provides that, if the FP Applicant does not file a request for a
review, abandons its appeal or withdraws its notice of appeal, the
Department's decision shall constitute final action by FINRA.

[cir] Transmission of Documents

    Paragraph (a)(13)(B) of the rule provides that, within 14 days
after the filing of a request for review, the Department shall:
Transmit to the National Adjudicatory Council copies of all documents
that were considered in connection with the Department's decision and
an index to the documents; and serve on the FP Applicant a copy of such
documents (other than those documents originally submitted by the FP
Applicant) and a copy of the index.

[cir] Appointment of Subcommittee

    Paragraph (a)(13)(C) of the rule provides that the National
Adjudicatory Council or the Review Subcommittee as defined in FINRA
Rule 9120 shall appoint a Subcommittee to participate

in the review.\29\ Paragraph (a)(13)(C) further provides that the
Subcommittee shall be composed of two or more persons who shall be
current or past members of the National Adjudicatory Council or former
Directors or Governors.
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    \29\ FINRA Rule 9120 among other things defines ``Review
Subcommittee'' to mean a body appointed by the National Adjudicatory
Council pursuant to the FINRA Regulation By-Laws.

---------------------------------------------------------------------------
[cir] Powers of Subcommittee

    Paragraph (a)(13)(D) of the proposed rule provides that, if a
hearing is requested, the Subcommittee shall conduct the hearing. If a
hearing is not requested, the Subcommittee may serve a notice directing
that a hearing be held. The rule provides that if a hearing is not
requested or directed, the Subcommittee shall conduct its review on the
basis of the record developed before the Department and any written
submissions made by the FP Applicant or the Department in connection
with the request for review.

[cir] Hearing

    Paragraph (a)(13)(E) of the rule addresses the hearing:
    [rtarr8] Notice: Paragraph (a)(13)(E)(i) provides that, if a
hearing is requested or directed, the hearing shall be held within 45
days after the filing of the request with the National Adjudicatory
Council or service of the notice by the Subcommittee. The rule provides
that the National Adjudicatory Council shall serve written notice of
the date and time of the hearing to the FP Applicant by email,
facsimile or overnight courier not later than 14 days before the
hearing;
    [rtarr8] Counsel: Paragraph (a)(13)(E)(ii) provides that the FP
Applicant and the Department may be represented by counsel at a hearing
conducted pursuant to the rule;
    [rtarr8] Evidence: Paragraph (a)(13)(E)(iii) provides that formal
rules of evidence shall not apply to a hearing under the rule. Not
later than five days before the hearing, the FP Applicant and the
Department shall exchange copies of their proposed hearing exhibits and
witness lists and provide copies of the same to the National
Adjudicatory Council. The rule provides that if the FP Applicant or the
Department fails to provide copies of its proposed hearing exhibits or
witness list within such time, the Subcommittee shall exclude the
evidence or witnesses from the proceeding, unless the Subcommittee
determines that good cause is shown for failure to comply with the
production date set forth in this subparagraph;
    [rtarr8] Transcript: Paragraph (a)(13)(E)(iv) of the proposed rule
provides that the hearing shall be recorded and a transcript prepared
by a court reporter. The rule provides that a transcript of the hearing
shall be available for purchase from the court reporter at prescribed
rates. The FP Applicant, the Department, or a witness may seek to
correct the transcript. The rule further provides that, upon notice to
the FP Applicant and the Department, the Subcommittee may direct the
correction to the transcript as requested or sua sponte.

[cir] Additional Information, Briefs

    Paragraph (a)(13)(F) of the rule provides that, at any time during
its consideration, the Subcommittee or the National Adjudicatory
Council may direct the FP Applicant or the Department to file
additional information or briefs. The rule provides that any additional
information or brief filed shall be provided to all parties before the
National Adjudicatory Council renders its decision.

[cir] Subcommittee Recommendation

    Paragraph (a)(13)(G) of the rule provides that the Subcommittee
shall present a recommended decision in writing to the National
Adjudicatory Council within 60 days after the date of the hearing held
pursuant to paragraph (a)(13)(E) of the rule.

[cir] Decision

    Paragraph (a)(13)(H) of the rule provides that, after considering
all matters presented in the review and the Subcommittee's recommended
written decision, the National Adjudicatory Council may affirm, modify,
or reverse the Department's decision or remand the membership
proceeding with instructions.

[cir] Discretionary Review by the FINRA Board

    Paragraph (a)(13)(I)(i) of the rule provides that the National
Adjudicatory Council shall provide a copy of its decision to the Board.
Alternatively, the National Adjudicatory Council may remand the
membership proceeding with instructions. If the Board does not call the
decision for review under paragraph (a)(13)(I)(ii) of the rule, as
discussed below, the National Adjudicatory Council shall issue the
written decision after the expiration of the Board call for review
period, and the decision shall constitute final FINRA action.
    Paragraph (a)(13)(I)(ii) of the rule provides that a Governor may
call a membership proceeding for review by the Board at the next
meeting of the Board that is at least 15 days after the date on which
the Board received the decision. If a call for review is made, the
Board shall review the membership proceeding not later than the next
meeting of the Board. The rule provides that the Board shall issue a
written decision affirming, modifying or reversing the National
Adjudicatory Council's decision and setting forth its findings and
conclusions. Alternatively, the Board may remand the membership
proceeding with instructions. The rule provides that the decision shall
constitute final FINRA action, unless the Board remands the membership
proceeding.

 Application to the SEC for Review (Proposed Funding Portal
Rule 110(a)(14))

    Proposed Funding Portal Rule 110(a)(14) provides that a person
aggrieved by final action of FINRA under paragraph (a) of the rule may
apply for review by the SEC pursuant to Section 19(d)(2) of the
Act.\30\ The filing of an application for review shall not stay the
effectiveness of a decision constituting final action of FINRA, unless
the SEC otherwise orders.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(d)(2).

 Filing of Misleading Information as to Membership or
---------------------------------------------------------------------------
Registration (Proposed Funding Portal Rule 110(a)(15))

    Proposed Funding Portal Rule 110(a)(15) provides that no funding
portal member or person associated with a funding portal member shall
file with FINRA information with respect to membership or registration
that is incomplete or inaccurate so as to be misleading, or that could
in any way tend to mislead, or shall fail to correct such filing after
notice thereof.

C. Proposed Funding Portal Rule 200 (Funding Portal Conduct)

    Based in large part on FINRA Rule 2010 (Standards of Commercial
Honor and Principles of Trade), proposed Funding Portal Rule 200(a)
provides that a funding portal member, in the conduct of its business,
shall observe high standards of commercial honor and just and equitable
principles of trade.
    Based in large part on FINRA Rule 2020 (Use of Manipulative,
Deceptive or Other Fraudulent Devices), proposed Funding Portal Rule
200(b) provides that no funding portal member shall effect any
transaction in, or induce the purchase or sale of, any security by
means of, or by aiding or abetting, any manipulative, deceptive or
other fraudulent device or contrivance.
    Proposed Funding Portal Rule 200(c) (Communications with the
Public) is aimed at prohibiting false and misleading statements. The
proposed rule is a streamlined version of FINRA Rule 2210
(Communications with the

Public) and sets forth the following requirements: \31\
---------------------------------------------------------------------------

    \31\ FINRA has further streamlined the rule vis-[agrave]-vis the
version published in the Notice to reflect the limited scope of
activity permitted by funding portals. See note 6 supra.
---------------------------------------------------------------------------

     Paragraph 200(c)(1) of the rule defines the term ``funding
portal communication'' to mean any electronic or other written
communication that is distributed or made available by a funding portal
member to one or more investors.
     Paragraph 200(c)(2) of the rule addresses content
standards. Paragraph 200(c)(2)(A) provides that no funding portal
communication may:
    [cir] Include any false, exaggerated, unwarranted, promissory or
misleading statement or claim;
    [cir] omit any material fact or qualification if the omission, in
light of the context of the material presented, would cause the
communication to be misleading;
    [cir] state or imply that FINRA, or any other corporate name or
facility owned by FINRA, or any other regulatory organization endorses,
indemnifies, or guarantees the funding portal member's business
practices; or
    [cir] predict or project performance, imply that past performance
will recur or make any exaggerated or unwarranted claim, opinion or
forecast. A hypothetical illustration of mathematical principles is
permitted, provided that it does not predict or project the performance
of an investment. Further, paragraph (c)(2)(B) of the rule provides
that all funding portal member communications must be based on
principles of fair dealing and good faith and must be fair and
balanced. Paragraph (c)(2)(C) of the rule provides that all funding
portal member communications must prominently disclose the name of the
funding portal member, or the name under which the funding portal
member primarily conducts business as disclosed on the member's Form
FP-NMA.
     Paragraph 200(c)(3) of the rule addresses issuer
communications. Specifically, the rule provides that the content
standards of paragraphs (c)(2)(A) and (B) of the rule shall not apply
to any communication on the funding portal member's Web site that is
prepared solely by an issuer; provided, however, that no funding portal
member may include on its Web site any issuer communication that the
funding portal member knows or has reason to know contains any untrue
statement of a material fact or is otherwise false or misleading.

D. Proposed Funding Portal Rule 300 (Funding Portal Compliance)

1. Proposed Funding Portal Rule 300(a) (Supervisory System)
    Proposed Funding Portal Rule 300(a) is a streamlined version of
FINRA's supervision rules and is designed to permit funding portal
members flexibility to tailor their supervisory systems to their
business models. Paragraph (a)(1) of the rule requires that each
funding portal member establish and maintain a system to supervise the
activities of each associated person of the funding portal member that
is reasonably designed to achieve compliance with applicable securities
laws and regulations, and with the Funding Portal Rules. The rule
provides that a funding portal member's supervisory system must
provide, at a minimum, for:
     The establishment and maintenance of written procedures to
supervise the activities of the funding portal and its associated
persons;
     the designation of a person with authority to carry out
the supervisory responsibilities of the funding portal member; and
     reasonable efforts to determine that all supervisory
personnel are qualified by virtue of experience or training to carry
out their assigned responsibilities.
    Paragraph (a)(2) of the rule is designed to align in large part
with the inspections and examinations provisions of proposed Rule
403(c) under Regulation Crowdfunding. Proposed Funding Portal Rule
300(a)(2) provides that a funding portal member must permit the
examination and inspection of all of its businesses and business
operations that relate to its activities as a funding portal, such as
its premises, systems, platforms and records, by representatives of
FINRA and the Commission, and must cooperate with the examination,
inspection or investigation of any persons directly or indirectly using
its platform.
2. Proposed Funding Portal Rule 300(b) (Executive Representative)
    As discussed above, the General Standards under proposed Funding
Portal Rule 100 provide in part that all funding portal members and
persons associated with funding portal members shall be subject to the
FINRA By-Laws and FINRA Regulation By-Laws, unless the context requires
otherwise. Article IV, Section 3 of the FINRA By-Laws requires, in
brief, that each FINRA member appoint and certify to FINRA an executive
representative to represent, vote, and act for the member in FINRA
affairs. Consistent with FINRA Rule 4517(b),\32\ proposed Funding
Portal Rule 300(b) requires each funding portal member to designate to
FINRA, for purposes of Article IV, Section 3 of the FINRA By-Laws, an
executive representative. The rule requires that each funding portal
member must update its executive representative designation in the
manner prescribed by proposed Funding Portal Rule 300(d), as discussed
below.
---------------------------------------------------------------------------

    \32\ The executive representative requirement is an addition to
the proposal vis-[agrave]-vis the proposed rules as published in the
Notice. FINRA believes it is helpful to prospective funding portal
members to add this administrative requirement to the Funding Portal
Rules for purposes of clarity.
---------------------------------------------------------------------------

3. Proposed Funding Portal Rule 300(c) (Reporting Requirements)
    Proposed Funding Portal Rule 300(c) requires funding portal members
to report to FINRA (and sets forth the obligations of such members'
associated persons to report to the member) regulatory proceedings,
disciplinary and other events.\33\ The rule is largely based on current
FINRA Rule 4530 (Reporting Requirements). Specifically, the rule sets
forth the following requirements.
---------------------------------------------------------------------------

    \33\ Funding portal members would use the Funding Portal Rule
300(c) Form for their reporting requirements pursuant to the rule.
See Exhibit 3c of this filing.
---------------------------------------------------------------------------

     Paragraph (c)(1) of the rule requires each funding portal
member to promptly report to FINRA, within 30 calendar days, through
such means as FINRA may specify, after the member knows or should have
known of the existence of any of the following:
    [cir] The funding portal member or an associated person of the
funding portal member: \34\
---------------------------------------------------------------------------

    \34\ See proposed Funding Portal Rule 300(c)(1)(A) in Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] Is named as a defendant or respondent in any regulatory
proceeding, whether foreign or domestic, involving an alleged violation
of any securities-, insurance-, commodities-, financial- or investment-
related laws, rules, regulations, standards of conduct or by-laws, or
has been found by a regulatory body or self-regulatory organization,
whether foreign or domestic, to have violated any securities-,
insurance-, commodities-, financial- or investment-related laws, rules,
regulations or standards of conduct; \35\
---------------------------------------------------------------------------

    \35\ See proposed Funding Portal Rule 300(c)(1)(A)(i) in Exhibit
5.
---------------------------------------------------------------------------

    [rtarr8] is the subject of any written complaint involving
allegations of fraudulent conduct or misuse or misappropriation of
funds or assets; \36\
---------------------------------------------------------------------------

    \36\ See proposed Funding Portal Rule 300(c)(1)(A)(ii) in
Exhibit 5.

---------------------------------------------------------------------------

    [rtarr8] is denied registration or is expelled, enjoined, directed
to cease and desist, suspended or otherwise disciplined by any
securities-, insurance-, commodities-, financial- or investment-related
regulatory body or self-regulatory organization, whether foreign or
domestic, or is denied membership or continued membership in any such
self-regulatory organization; or is barred from becoming associated
with any member of any such self-regulatory organization; \37\
---------------------------------------------------------------------------

    \37\ See proposed Funding Portal Rule 300(c)(1)(A)(iii) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] is indicted, or convicted of, or pleads guilty to, or
pleads no contest to, any felony; or any misdemeanor that involves the
purchase or sale of any security, the taking of a false oath, the
making of a false report, bribery, perjury, burglary, larceny, theft,
robbery, extortion, forgery, counterfeiting, fraudulent concealment,
embezzlement, fraudulent conversion, or misappropriation of funds, or
securities, or a conspiracy to commit any of these offenses, or
substantially equivalent activity in a domestic, military or foreign
court; \38\
---------------------------------------------------------------------------

    \38\ See proposed Funding Portal Rule 300(c)(1)(A)(iv) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] is a director, controlling stockholder, partner, officer
or sole proprietor of, or an associated person with, a broker, dealer,
investment company, investment advisor, funding portal, underwriter or
insurance company that was suspended, expelled or had its registration
denied or revoked by any regulatory body, jurisdiction or organization,
whether foreign or domestic, or is associated in such a capacity with a
bank, trust company or other financial institution that was convicted
of or pleaded no contest to, any felony or misdemeanor in a foreign or
domestic court; \39\
---------------------------------------------------------------------------

    \39\ See proposed Funding Portal Rule 300(c)(1)(A)(v) in Exhibit
5.
---------------------------------------------------------------------------

    [rtarr8] is a defendant or respondent in any securities- or
commodities-related civil litigation or arbitration, is a defendant or
respondent in any financial-related insurance civil litigation or
arbitration, or is the subject of any claim for damages by an investor,
broker, dealer or funding portal member that relates to the provision
of financial services or relates to a financial transaction, and such
civil litigation, arbitration or claim for damages has been disposed of
by judgment, award or settlement for an amount exceeding $15,000.
However, when the funding portal member is the defendant or respondent
or is the subject of any claim for damages by an investor, broker,
dealer or funding portal member, then the reporting to FINRA shall be
required only when such judgment, award or settlement is for an amount
exceeding $25,000; \40\
---------------------------------------------------------------------------

    \40\ See proposed Funding Portal Rule 300(c)(1)(A)(vi) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] is, or is involved in the sale of any financial
instrument, the provision of any investment advice or the financing of
any such activities with any person who is, subject to a ``statutory
disqualification'' as that term is defined in the Exchange Act,
provided, however, that this requirement shall not apply to activities
with a member or an associated person that has been approved (or is
otherwise permitted pursuant to FINRA rules and the federal securities
laws) to be a member or to be associated with a member. The report
shall include the name of the person subject to the statutory
disqualification and details concerning the disqualification; \41\ or
---------------------------------------------------------------------------

    \41\ See proposed Funding Portal Rule 300(c)(1)(A)(vii) in
Exhibit 5.
---------------------------------------------------------------------------

    [cir] an associated person of the funding portal member is the
subject of any disciplinary action taken by the funding portal member
involving suspension, termination, the withholding of compensation or
of any other remuneration in excess of $2,500, the imposition of fines
in excess of $2,500 or is otherwise disciplined in any manner that
would have a significant limitation on the individual's activities on a
temporary or permanent basis.\42\
---------------------------------------------------------------------------

    \42\ See proposed Funding Portal Rule 300(c)(1)(B) in Exhibit 5.
---------------------------------------------------------------------------

     Paragraph (c)(2) of the rule provides that each funding
portal member shall promptly report to FINRA, within 30 calendar days,
through such means as FINRA may specify, after the funding portal
member has concluded or reasonably should have concluded that an
associated person of the funding portal member or the funding portal
member itself has violated any securities-, commodities-, financial- or
investment-related laws, rules, regulations or standards of conduct of
any foreign or domestic regulatory body or self-regulatory
organization.
     Paragraph (c)(3) of the rule provides each person
associated with a funding portal member must promptly report to the
funding portal member the existence of any of the events set forth in
paragraph (c)(1)(A) of the rule.
     Paragraph (c)(4) of the rule provides that nothing
contained in the rule shall eliminate, reduce or otherwise abrogate the
responsibilities of a funding portal member to promptly disclose
required information on SEC Form Funding Portal as applicable, to make
any other required filings or to respond to FINRA with respect to any
investor complaint, examination or inquiry. The rule provides that, in
addition, a member need not report an event otherwise required to be
reported under paragraph (c)(1)(A) of the rule if the member discloses
the event on SEC Form Funding Portal, consistent with the requirements
of that form, or as required pursuant to proposed Funding Portal Rule
800(b)(2).\43\
---------------------------------------------------------------------------

    \43\ As further discussed below, proposed Funding Portal Rule
800(b) addresses the public disclosure of information on funding
portals by FINRA and requires, among other things, that funding
portal members provide and update information regarding statutory
disqualifications.
---------------------------------------------------------------------------

     Paragraph (c)(5) of the rule provides that, for purposes
of the rule, Supplementary Material .01 through .07, .09 and .10 of
FINRA Rule 4530 (the ``Supplementary Material'') shall apply,\44\
provided, however, that, as the context requires:
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    \44\ The Supplementary Materials provide additional guidance as
to specified requirements under the rule. Supplementary Materials
.01 and .02 address members' conclusions of violative conduct.
Supplementary Material .03 addresses the meaning of the term
``found'' as used in the specified provisions of the rule.
Supplementary Material .04 addresses the meaning of the term
``regulatory body'' for purposes of the rule. Supplementary Material
.05 provides additional guidance as to reporting of individual and
related events. Supplemental Material .06 addresses the calculation
of monetary thresholds. Supplementary Material .07 addresses former
associated persons. Supplementary Material .09 defines the meaning
of the term ``financial related'' for purposes of the rule.
Supplementary Material .10 provides guidance as to findings and
actions by FINRA.
---------------------------------------------------------------------------

    [cir] the term ``member'' as used in the Supplementary Material
shall mean ``funding portal member'' as defined pursuant to proposed
Funding Portal Rule 100(b);
    [cir] the term ``associated person'' as used in the Supplementary
Material shall mean ``associated person of a funding portal member'' or
``person associated with a funding portal member'' as defined pursuant
to proposed Funding Portal Rule 100(b);
    [cir] Supplementary Material .01 shall apply to paragraphs
(c)(1)(B) and (c)(2) of proposed Funding Portal Rule 300;
    [cir] Supplementary Material .02 and .03 shall apply to paragraphs
(c)(1)(A)(i) and (c)(2) of the rule;
    [cir] Supplementary Material .05 and .07 shall apply to paragraphs
(c)(1) and (c)(2) of the rule;
    [cir] Supplementary Material .06 shall apply to paragraph
(c)(1)(A)(vi) of the rule; and
    [cir] Supplementary Material .10 shall apply to paragraphs
(c)(1)(A)(i) and (c)(1)(A)(iii) of the rule.

4. Proposed Funding Portal Rule 300(d) (Contact Information
Requirements)
    Proposed Funding Portal Rule 300(d), based in large part on the
contact information requirements set forth in FINRA Rule 4517(c), is
designed to require funding portal members to report to FINRA specified
contact information. Specifically, the rule provides:
     Each funding portal member must report to FINRA all
contact information required by FINRA through such means as FINRA may
specify.
     Each funding portal member must promptly update its
required contact information (including its executive representative
designation and contact information as required by Article IV, Section
3 of the FINRA By-Laws), but in any event not later than 30 days
following any change in such information. In addition, each member
shall review and, if necessary, update its required contact
information, through such means as FINRA may specify, within 17
business days after the end of each calendar year.
     Each funding portal member must comply with any FINRA
request for such information promptly, but in any event not later than
15 days following the request, or such longer period that may be agreed
to by FINRA staff.
5. Proposed Funding Portal Rule 300(e) (Statement of Gross Revenue)
    Proposed Funding Portal Rule 300(e) requires each funding portal
member each year to report to FINRA, in the manner prescribed by FINRA,
the member's gross revenue on Form FP-Statement of Revenue, no later
than 60 calendar days following each calendar year-end.\45\ The rule
requires that the statement of gross revenue must be prepared in
accordance with U.S. Generally Accepted Accounting Principles.
---------------------------------------------------------------------------

    \45\ The requirement to submit the Statement of Gross Revenue
using Form FP-Statement of Revenue is an addition to the proposal
vis-[agrave]-vis the proposed rules as published in the Notice.
Proposed Form FP-Statement of Revenue is set forth in Exhibit 3d of
this filing. The Statement of Gross Revenue will be used to
determine a funding portal member's annual fees, which FINRA is
establishing as part of a separate rulemaking. See note 12 supra.
---------------------------------------------------------------------------

6. Proposed Funding Portal Rule 300(f) (Record of Associated Persons of
the Funding Portal Member)
    Proposed Funding Portal Rule 300(f) is based in large part on SEA
Rule 17a-3(a)(12)(ii) (17 CFR 240.17a-3(a)(12)(ii)), which requires
broker-dealers to make and keep current a record listing every
associated person of the broker-dealer. FINRA believes that requiring
funding portals to keep such a record is prudent both for supervisory
and regulatory oversight purposes.\46\ The rule requires each funding
portal member to make and keep current a record listing every
associated person of the funding portal member that shows, for each
such associated person, every office of the funding portal member where
the associated person regularly conducts any business for the funding
portal member, and any registration number, if any, to be prescribed by
FINRA, and every identification number or code assigned to the
associated person by the funding portal member. The rule requires each
funding portal member to preserve all records made pursuant to the rule
for five years, the first two in an easily accessible place, which
aligns with the retention period that the SEC has prescribed for
records that funding portals would have to make and preserve pursuant
to proposed Rule 404 under Regulation Crowdfunding.
---------------------------------------------------------------------------

    \46\ Proposed Funding Portal Rule 300(f) is an addition to the
proposal vis-[agrave]-vis the proposed rules as published in the
Notice. FINRA believes the requirement is a useful complement to
proposed Rule 404 under the SEC's Regulation Crowdfunding, which
sets forth specified records requirements for funding portals but
does not include the requirement as to listing associated persons of
the funding portal.
---------------------------------------------------------------------------

E. Proposed Funding Portal Rule 800 (Investigations and Sanctions)

1. Proposed Funding Portal Rule 800(a) (Application of FINRA Rule 8000
Series (Investigations and Sanctions) to Funding Portals)
    Proposed Funding Portal Rule 800(a) is designed to provide that
funding portal members will be subject to specified FINRA rules
governing investigations and sanctions. Specifically, the rule provides
that, except for FINRA Rules 8110 (Availability of Manual to
Customers), 8211 (Automated Submission of Trading Data Requested by
FINRA), 8213 (Automated Submission of Trading Data for Non-Exchange-
Listed Securities Requested by FINRA) and 8312 (FINRA BrokerCheck
Disclosure),\47\ all funding portal members shall be subject to the
FINRA Rule 8000 Series, unless the context requires otherwise,
provided, however, that:
---------------------------------------------------------------------------

    \47\ FINRA does not propose to apply FINRA Rule 8110 as part of
the Funding Portal Rules as the rule addresses availability of the
complete FINRA Manual and FINRA is not proposing to apply the
complete Manual to funding portal members. FINRA Rules 8211 and 8213
address trading data and are not applicable to funding portals by
virtue of the limited nature of their business. With respect to
FINRA Rule 8312, as discussed below, FINRA is proposing Funding
Portal Rule 800(b) as a streamlined version of the rule to apply to
funding portal members.
---------------------------------------------------------------------------

     The term ``member'' as used in the FINRA Rule 8000 Series
shall mean ``funding portal member'' as defined pursuant to Funding
Portal Rule 100(b);
     the term ``associated person'' as used in the FINRA Rule
8000 Series shall mean ``associated person of a funding portal member''
or ``person associated with a funding portal member'' as defined
pursuant to Funding Portal Rule 100(b);
     the terms ``rules'' and ``FINRA rules'' as used in the
FINRA Rule 8000 Series shall include the Funding Portal Rules;
     for purposes of FINRA Rule 8210(d): \48\
---------------------------------------------------------------------------

    \48\ FINRA Rule 8210(d) addresses notices mailed or otherwise
transmitted under the rule.
---------------------------------------------------------------------------

    [cir] a notice under FINRA Rule 8210 shall be deemed received by
the funding portal member to whom it is directed by mailing or
otherwise transmitting the notice to the last known business address of
the funding portal member as reflected in the SEC Form Funding Portal.
With respect to a person who is currently associated with a funding
portal member, the rule provides that a notice under FINRA Rule 8210
shall be deemed received by the person by mailing or otherwise
transmitting the notice to the last known business address of the
funding portal member as reflected in the SEC Form Funding Portal. With
respect to a person subject to FINRA's jurisdiction who was formerly
associated with a funding portal member, the rule provides that a
notice under FINRA Rule 8210 shall be deemed received by the person
upon personal service, as set forth in FINRA Rule 9134(a)(1).\49\ The
rule further provides that if the Adjudicator or FINRA staff
responsible for mailing or otherwise transmitting the notice to the
funding portal member or person currently associated with the funding
portal member has actual knowledge that the funding portal member's
address in the SEC Form Funding Portal is out of date or inaccurate,
then a copy of the notice shall be mailed or otherwise transmitted to:
---------------------------------------------------------------------------

    \49\ FINRA Rule 9134 addresses methods of and procedures for
service for purposes of the Rule 9000 Series.
---------------------------------------------------------------------------

    (i) the last known business address of the funding portal member as
reflected in the SEC Form Funding Portal; and
    (ii) any other more current address of the funding portal member or
the person currently associated with the funding portal member known to
the Adjudicator or FINRA staff who is responsible for mailing or
otherwise transmitting the notice; and

    [cir] if the Adjudicator or FINRA staff responsible for mailing or
otherwise transmitting the notice to the funding portal member or
person knows that the funding portal member or person is represented by
counsel regarding the investigation, complaint, examination, or
proceeding that is the subject of the notice, then the notice shall be
served upon counsel by mailing or otherwise transmitting the notice to
the counsel in lieu of the funding portal member or person, and any
notice served upon counsel shall be deemed received by the funding
portal member or person.
2. Proposed Funding Portal Rule 800(b) (Public Disclosure of
Information on Funding Portals)
    Proposed Funding Portal Rule 800(b) is a streamlined version of
FINRA Rule 8312 (FINRA BrokerCheck Disclosure) and addresses specified
information that FINRA shall make available to the public.\50\
Specifically, paragraph (b)(1) of the rule provides that FINRA may
provide access to the public, via an appropriate link on the FINRA Web
site, to a funding portal member's current SEC Form Funding Portal,
including amendments and registration withdrawal requests, as filed
with the SEC pursuant to SEC Regulation Crowdfunding, in the form made
publicly available by the SEC. The rule provides that, with respect to
a former funding portal member, FINRA may provide similar access to the
public to the former funding portal member's most recent SEC Form
Funding Portal, and any amendments and registration withdrawal
requests, as filed with the SEC.
---------------------------------------------------------------------------

    \50\ FINRA has further streamlined the proposed rule vis-
[agrave]-vis the version published in the Notice in the interest of
clarity.
---------------------------------------------------------------------------

    Paragraph (b)(2) of the rule provides that FINRA shall make
available to the public information filed by a funding portal member,
in a format to be prescribed by FINRA, indicating whether the funding
portal member or any associated person of the funding portal member is
subject to an event described in Section 3(a)(39) of the Exchange Act.
The rule provides that the funding portal member must keep this
information current and must update such information promptly, but in
any event not later than 10 days following any change in such
information.
    Paragraph (b)(3) of the rule provides that, with respect to the
information provided pursuant to paragraph (b)(2) of the rule, FINRA
shall not make available information reported as a Social Security
number, information that FINRA is otherwise prohibited from releasing
under Federal law, or information that is provided solely for use by
FINRA. The rule provides that FINRA reserves the right to exclude, on a
case-by-case basis, information that contains confidential customer
information, offensive or potentially defamatory language or
information that raises significant identity theft, personal safety or
privacy concerns that are not outweighed by investor protection
concerns or information that was reported in error by a funding portal
member.

F. Code of Procedure (Proposed Funding Portal Rule 900)

1. Proposed Funding Portal Rule 900(a) (Application of FINRA Rule 9000
Series (Code of Procedure) to Funding Portals)
    Proposed Funding Portal Rule 900(a) is designed to provide that
funding portal members will be subject to specified FINRA rules setting
forth FINRA's Code of Procedure. Specifically, except for the FINRA
Rule 9520 Series, FINRA Rule 9557, and the FINRA Rule 9700 Series,\51\
the rule provides that all funding portal members shall be subject to
the FINRA Rule 9000 Series, unless the context requires otherwise,
provided, however, that:
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    \51\ The FINRA Rule 9520 Series addresses ``eligibility
proceedings'' in the context of statutory qualifications which, as
discussed further below, FINRA is proposing to address under Funding
Portal Rule 900(b). FINRA Rule 9557 addresses service of notice to
members that are experiencing financial or operational difficulties
under net capital or similar financial responsibility requirements.
Because funding portals would not be subject to such requirements,
Rule 9557 would not be applicable. Similarly, the FINRA Rule 9700
Series addresses the automated quotation, execution or communication
systems owned or operated by FINRA, which are outside the scope of
funding portal business activity. Accordingly FINRA does not propose
to apply the Rule 9700 Series to funding portals.
---------------------------------------------------------------------------

     The term ``member'' as used in the FINRA Rule 9000 Series
shall mean ``funding portal member'' as defined pursuant to Funding
Portal Rule 100(b);
     the term ``associated person'' as used in the FINRA Rule
9000 Series shall mean ``associated person of a funding portal member''
or ``person associated with a funding portal member'' as defined
pursuant to Funding Portal Rule 100(b);
     the terms ``rules'' and ``FINRA rules'' as used in the
FINRA Rule 9000 Series shall include the Funding Portal Rules;
     for purposes of FINRA Rule 9217, a funding portal member
may be subject to a fine under FINRA Rule 9216(b) with respect to any
of the following: \52\
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    \52\ FINRA Rule 9216(b) sets forth procedures for disposition of
specified rule violations designated as minor rule violations
pursuant to a plan (referred to as an ``MRVP'') declared effective
by the SEC in accordance with SEA Section 19(d)(1) (15 U.S.C.
78s(d)(1)) and Rule 19d-1(c)(2) (17 CFR 240.19d-1(c)(2)) thereunder.
FINRA Rule 9217 sets forth the rules that are eligible for such
disposition. FINRA's MRVP allows FINRA to impose a fine of up to
$2,500 on any firm it regulates or person associated with a FINRA
regulated firm for a minor violation of an eligible rule.
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    [cir] failure to timely submit amendments to SEC Form Funding
Portal;
    [cir] Funding Portal Rule 200(c) (Communications with the Public);
    [cir] Funding Portal Rule 300(a)--failure to maintain adequate
written supervisory procedures where the underlying conduct is subject
to Rule 9217;
    [cir] Funding Portal Rule 300(c)--failure to timely file reports;
    [cir] failure to provide or update contact information as required
by Funding Portal Rule 300(d);
    [cir] Rule 303(f) of SEC Regulation Crowdfunding--confirmation of
transactions; and
    [cir] Rule 404 of SEC Regulation Crowdfunding--failure to make and
preserve records in conformance with all applicable laws, rules,
regulations and statements of policy promulgated thereunder, and with
the Funding Portal Rules;
     for purposes of FINRA Rules 9134(b)(1) and 9134(b)(2), the
residential or business address, as applicable, as reflected in SEC
Form Funding Portal, in lieu of the Central Registration Depository,
shall be acceptable;
     for purposes of FINRA Rule 9134(b)(2), service on a
contact employee, or United States agent for service of process, as set
forth in SEC Form Funding Portal, in lieu of Form BD, shall be
acceptable;
     for purposes of FINRA Rule 9551(a),\53\ FINRA staff may
issue a written notice requiring a funding portal member to file
communications with the FINRA Advertising Regulation Department at
least ten days prior to use if FINRA staff determines that the member
has departed from the standards of Funding Portal Rule 200(c);
---------------------------------------------------------------------------

    \53\ FINRA Rule 9551 addresses expedited proceedings by FINRA
for failure to comply with public communication standards.
---------------------------------------------------------------------------

     for purposes of FINRA Rule 9551(d), the pre-use filing
requirement referenced in a notice issued and served under FINRA Rule
9551 shall become effective 21 days after service of the notice, unless
stayed by a request for a hearing pursuant to FINRA Rule 9559;

     for purposes of proceedings pursuant to FINRA Rule
9810(a),\54\ proceedings may be initiated with respect to alleged
violations of Section 10(b) of the Exchange Act (15 U.S.C. 78j(b)) and
SEA Rule 10b-5 (17 CFR 240.10b-5), Funding Portal Rule 200(a) (if the
alleged violation is misuse of investor funds or assets, or based on
violations of Section 17(a) of the Securities Act (15 U.S.C. 77q(a))
and Funding Portal Rule 200(b).
---------------------------------------------------------------------------

    \54\ FINRA Rule 9810 addresses initiation of cease and desist
proceedings by FINRA for specified violations.
---------------------------------------------------------------------------

2. Proposed Funding Portal Rule 900(b) (Eligibility Proceedings)
    Proposed Funding Portal Rule 900(b) is a streamlined version of the
current FINRA Rule 9520 Series. The rule sets forth procedures for a
person to become or remain associated with a funding portal member,
notwithstanding the existence of a statutory disqualification as
defined in Article III, Section 4 of the FINRA By-Laws and for a
funding portal member or person associated with a funding portal member
to obtain relief from the eligibility or qualification requirements of
the FINRA By-Laws and Funding Portal Rules. Such actions hereinafter
are referred to as ``eligibility proceedings.'' The rule requirements
are set forth below.

 Definitions (Proposed Funding Portal Rule 900(b)(2))

    Paragraph (b)(2) of the rule sets forth the following definitions:
    [cir] The term ``Application'' means FINRA's Form MC-400 for
individuals or Form MC-400A for funding portal members, filed with the
Department of Registration and Disclosure (``RAD'').
    [cir] The term ``disqualified funding portal member'' means a
funding portal member that is or becomes subject to a disqualification
or is otherwise ineligible for membership under Article III, Section 3
of the FINRA By-Laws.
    [cir] The term ``disqualified person'' means an associated person
of a funding portal member or person seeking to become an associated
person of a funding portal member who is or becomes subject to a
disqualification or is otherwise ineligible for association under
Article III, Section 3 of the FINRA By-Laws.
    [cir] The term ``sponsoring funding portal member'' means the
funding portal member or applicant for membership pursuant to Funding
Portal Rule 110(a) that is sponsoring the association or continued
association of a disqualified person to be admitted, readmitted, or
permitted to continue in association.

 Initiation of Eligibility Proceeding; Department of Member
Regulation Consideration (Proposed Funding Portal Rule 900(b)(3))

    Proposed Funding Portal Rule 900(b)(3)(A) addresses initiation of
eligibility proceedings.

[cir] Issuance of Notice of Disqualification or Ineligibility

    Proposed Funding Portal Rule 900(b)(3)(A)(i) provides that if FINRA
staff has reason to believe that a disqualification exists or that a
funding portal member or person associated with a funding portal member
otherwise fails to meet the eligibility requirements of FINRA, FINRA
staff shall issue a written notice to the funding portal member or
applicant for funding portal membership under proposed Funding Portal
Rule 110(a). The rule provides that the notice shall specify the
grounds for such disqualification or ineligibility. FINRA staff shall
not issue such written notice to funding portal members or applicants
for funding portal membership when no Application is required pursuant
to proposed Funding Portal Rule 900(b)(7), as discussed below.

[cir] Notice Regarding a Funding Portal Member

    Proposed Funding Portal Rule 900(b)(3)(A)(ii) provides that a
notice issued to a disqualified funding portal member shall state that
the disqualified funding portal member may apply for relief by filing
an Application or, in the case of a matter set forth in proposed
Funding Portal Rule 900(b)(8)(A), as discussed below, a written request
for relief, within 10 business days after service of the notice. The
rule provides that if the funding portal member fails to file the
Application or, where appropriate, the written request for relief,
within the 10-day period, the membership of the funding portal member
shall be canceled, unless the Department of Member Regulation grants an
extension for good cause shown.

[cir] Notice Regarding an Associated Person

    Proposed Funding Portal Rule 900(b)(3)(A)(iii) provides that a
notice issued regarding a disqualified person to a funding portal
member or applicant for funding portal membership under Funding Portal
Rule 110(a) shall state that such funding portal member or applicant
for funding portal membership may file an Application on behalf of
itself and such person or, in the case of a matter set forth in Funding
Portal Rule 900(b)(8)(A) a written request for relief, within 10
business days after service of the notice. The rule provides that if
the funding portal member fails to file the Application or, where
appropriate, the written request for relief, within the 10-day period,
the funding portal member may not associate or continue to associate
with the disqualified person, unless the Department of Member
Regulation grants an extension for good cause shown.

[cir] Service

    Paragraph (b)(3)(A)(iv) of the proposed rule provides that a notice
issued under paragraph (b)(3)(A) of the rule shall be served by
facsimile or electronic mail, or pursuant to FINRA Rules 9131 \55\ and
9134, as adopted pursuant to proposed Funding Portal Rule 900(a).

    \55\ FINRA Rule 9131 addresses service of a complaint by FINRA
for purposes of the Rule 9000 Series.
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 Obligation of Funding Portal Member To Initiate Eligibility
Proceeding (Proposed Funding Portal Rule 900(b)(4))

    Proposed Funding Portal Rule 900(b)(4)(A) addresses the obligation
of a funding portal member to initiate eligibility proceedings.
Specifically, the rule provides that a funding portal member must file
an Application or, in the case of a matter set forth in proposed
Funding Portal Rule 900(b)(8)(A) a written request for relief, with
RAD, if the funding portal member determines prior to receiving a
notice under paragraph (b)(3)(A) of this Rule that:
    [cir] It has become a disqualified funding portal member;
    [cir] A person associated with such funding portal member or whose
association is proposed by an applicant for funding portal membership
under Funding Portal Rule 110(a) has become a disqualified person; or
    [cir] The funding portal member or applicant for funding portal
membership under Funding Portal Rule 110(a) wishes to sponsor the
association of a person who is a disqualified person.

 Withdrawal of Application or Written Request for Relief
(Proposed Funding Portal Rule 900(b)(5))

    Proposed Funding Portal Rule 900(b)(5)(A) provides that a funding
portal member may withdraw its Application or, as set forth in proposed
Funding Portal Rule 900(b)(8)(A) its written request for relief, at any
time prior to an appeal by filing a written notice with the Department
of Member Regulation and RAD pursuant to FINRA Rules 9135 (Filing of
Papers with Adjudicator: Procedure), 9136 (Filing of Papers: Form), and
9137 (Filing of

Papers: Signature Requirement and Effect), as adopted pursuant to
Funding Portal Rule 900(a). The rule provides that a funding portal
member may withdraw its Application after the start of an appeal but
prior to the issuance of a decision by the National Adjudicatory
Council by filing a written notice with the Department of Member
Regulation and the Office of General Counsel pursuant to FINRA Rules
9135, 9136, and 9137, as adopted pursuant to Funding Portal Rule
900(a).

 Ex Parte Communications (Proposed Funding Portal Rule
900(b)(6))

    Proposed Funding Portal Rule 900(b)(6) provides that the
prohibitions against ex parte communications set forth in FINRA Rule
9143, as adopted pursuant to Funding Portal Rule 900(a), shall become
effective under Funding Portal Rule 900(b) when FINRA staff has
initiated the eligibility proceeding and FINRA staff has knowledge that
a funding portal member intends to file an Application or written
request for relief pursuant to Funding Portal Rule 900(b).

 Relief From Eligibility Proceedings (Proposed Funding Portal
Rule 900(b)(7))

    Proposed Funding Portal Rule 900(b)(7) provides that a funding
portal member is not required to file an Application if: \56\
---------------------------------------------------------------------------

    \56\ The disqualifications set forth under paragraph (b)(7) of
the rule reflect the three additional categories of disqualification
that FINRA addressed in 2009, specifically, willful violations of
the federal securities or commodities laws, grounds for statutory
disqualification that were enacted by the Sarbanes-Oxley Act, and
associations with specified other persons subject to statutory
disqualification. See Regulatory Notice 09-19 (Eligibility
Proceedings) (April 2009). See also Securities Exchange Act Release
No. 59586 (March 17, 2009), 74 FR 12166 (March 23, 2009) (Order
Approving Proposed Rule Change, as Modified by Amendment No. 1; File
No. SR-FINRA-2008-045); Securities Exchange Act Release No. 59722
(April 7, 2009), 74 FR 17267 (April 14, 2009) (Notice of Filing and
Order Granting Accelerated Approval of Proposed Rule Change; File
No. SR-FINRA-2009-022).
---------------------------------------------------------------------------

    [cir] The disqualification arises solely from findings in Exchange
Act Section 15(b)(4)(D) or (E) by the SEC, the Commodity Futures
Trading Commission or a self-regulatory organization, and the sanction
is no longer in effect.\57\
---------------------------------------------------------------------------

    \57\ See proposed Funding Portal Rule 900(b)(7)(A) in Exhibit 5.
---------------------------------------------------------------------------

    [cir] The disqualification arises solely from a final order
specified in Exchange Act Section 15(b)(4)(H)(i), and the bar is no
longer in effect, provided that there is no final order specified in
Exchange Act Section 15(b)(4)(H)(ii), in which case paragraph (b)(7)(C)
of the rule, as discussed below, applies.\58\
---------------------------------------------------------------------------

    \58\ See proposed Funding Portal Rule 900(b)(7)(B) in Exhibit 5.
---------------------------------------------------------------------------

    [cir] The disqualification arises solely from a final order
specified in Exchange Act Section 15(b)(4)(H)(ii), and:
    [rtarr8] the sanctions do not involve licensing or registration
revocation or suspension (or analogous sanctions), and the sanctions
are no longer in effect; or
    [rtarr8] the sanctions do involve licensing or registration
revocation or suspension (or analogous sanctions), the sanctions are no
longer in effect, and the order was entered ten or more years ago.\59\
---------------------------------------------------------------------------

    \59\ See proposed Funding Portal Rule 900(b)(7)(C) in Exhibit 5.
---------------------------------------------------------------------------

    [cir] The disqualification arises solely under Exchange Act Section
3(a)(39)(E), and the disqualified funding portal member or person is
subject to the disqualification solely because the member or person has
associated with it any person who is known, or in the exercise of
reasonable care should be known, to the disqualified member or person
to be a person described by subparagraph (A), (B), (C), or (D) of
Exchange Act Section 3(a)(39), unless the associated person controls
such disqualified member or person, or is a general partner or officer
(or person occupying a similar status or performing similar functions)
of such disqualified member.\60\
---------------------------------------------------------------------------

    \60\ See proposed Funding Portal Rule 900(b)(7)(D) in Exhibit 5.

 Matters That May Be Approved After the Filing of an
Application or Written Request for Relief (Proposed Funding Portal Rule
---------------------------------------------------------------------------
900(b)(8))

    Paragraph (b)(8)(A) of the proposed rule provides that the
Department of Member Regulation, as it deems consistent with the public
interest and the protection of investors, is authorized to approve a
written request for relief from the eligibility requirements by a
disqualified funding portal member or a sponsoring funding portal
member without the filing of an Application by such disqualified
funding portal member or sponsoring funding portal member if a
disqualified funding portal member or disqualified person is subject to
one or more of the following conditions, but is not otherwise subject
to disqualification:
    [cir] An injunction as described in Section 15(b)(4)(C) of the
Exchange Act that was entered ten or more years prior to the proposed
admission or continuance; or
    [cir] a request to change the supervisor of a disqualified person.
    Paragraph (b)(8)(B) of the rule provides that the Department of
Member Regulation, as it deems consistent with the public interest and
the protection of investors, may approve, upon the filing of an
Application by a disqualified funding portal member or a sponsoring
funding portal member and written consent to a heightened supervisory
plan, all Applications seeking relief from disqualifications arising
under Section 3(a)(39) of the Exchange Act.
    Paragraph (b)(8)(B)(i) of the rule provides that, by the submission
of a written consent to a heightened supervisory plan, the disqualified
funding portal member, sponsoring funding portal member and
disqualified person waive:
    [cir] The right of appeal to the National Adjudicatory Council, the
SEC, and the courts, or otherwise challenge the validity of the
supervisory plan, if the supervisory plan is accepted;
    [cir] any right of the disqualified funding portal member,
sponsoring funding portal member, and disqualified person to claim bias
or prejudgment by the Department of Member Regulation, the General
Counsel, the National Adjudicatory Council, or any member of the
National Adjudicatory Council, in connection with such person's or
body's participation in discussions regarding the terms and conditions
of the Department of Member Regulation's approval or the supervisory
plan, or other consideration of the approval or supervisory plan,
including acceptance or rejection of such approval or supervisory plan;
and
    [cir] any right of the disqualified funding portal member,
sponsoring funding portal member, and disqualified person to claim that
a person violated the ex parte prohibitions of FINRA Rule 9143 or the
separation of functions prohibitions of FINRA Rule 9144, as adopted
pursuant to Funding Portal Rule 900(a), in connection with such
person's or body's participation in discussions regarding the terms and
conditions of the approval or supervisory plan, or other consideration
of the approval or supervisory plan, including acceptance or rejection
of such approval or supervisory plan.
    Paragraph (b)(8)(B)(ii) of the rule provides that if the heightened
supervisory plan is rejected, the disqualified funding portal member,
sponsoring funding portal member, or disqualified person shall be bound
by the waivers made under paragraph (b)(8)(B)(i) of the rule for
conduct by persons or bodies occurring during the period beginning on
the date the heightened supervisory plan was submitted and ending upon
the rejection of the heightened supervisory plan and shall have the
right to appeal such decision pursuant to proposed Funding Portal Rule
900(b)(11), as discussed below.

 Department of Member Regulation Consideration of Applications
for New Funding Portal Members (Proposed Funding Portal Rule 900(b)(9))

    Proposed Funding Portal Rule 900(b)(9) provides that in all
instances where FINRA receives a Form MC-400 or Form MC-400A under this
rule, and such Application is submitted on behalf of an applicant for
membership as a funding portal member under Funding Portal Rule 110(a),
the Department of Member Regulation shall defer a decision on such Form
MC-400 or Form MC-400A until such time as FINRA has issued a
determination on the application submitted pursuant to Funding Portal
Rule 110(a).

 Rights of Disqualified Funding Portal Member, Sponsoring
Funding Portal Member, Disqualified Person, and Department of Member
Regulation (Proposed Funding Portal Rule 900(b)(10))

    Proposed Funding Portal Rule 900(b)(10)(A) provides that in the
event the Department of Member Regulation does not approve a written
request for relief from the eligibility requirements pursuant to
Funding Portal Rule 900(b)(8)(A), the disqualified funding portal
member or sponsoring funding portal member may file an Application
under Funding Portal Rule 900(b)(8)(B). The rule provides that the
Department of Member Regulation may require a disqualified funding
portal member or sponsoring funding portal member to file an
Application with RAD, notwithstanding the provisions of proposed
Funding Portal Rule 900(b)(8)(A).
    FINRA has revised paragraph (b)(10)(B) of the rule vis-[agrave]-vis
the proposal as published in the Notice so as to better align the rule
with existing provisions for broker-dealer members. Based in large part
on FINRA Rule 9522(e)(3), proposed Funding Portal Rule 900(b)(10)(B),
as revised, provides that, in the event the Department of Member
Regulation does not approve an Application pursuant to Funding Portal
Rule 900(b)(8)(B), the Department of Member Regulation shall inform the
disqualified funding portal member or sponsoring funding portal member
of its decision in writing. Further, as revised, the rule provides that
the decision shall explain in detail the reason for denial. The rule
states that the disqualified funding portal member or sponsoring
funding portal member shall have the right to appeal such decision
pursuant to proposed Funding Portal Rule 900(b)(11), as discussed
below. If not timely appealed pursuant to paragraph (b)(11) of the
rule, the decision issued by the Department of Member Regulation shall
constitute final action of FINRA and shall become effective
immediately.

 Appeal of Department of Member Regulation's Decision To Deny
an Application or a Written Request for Relief (Proposed Funding Portal
Rule 900(b)(11))

    Paragraph (b)(11) of the proposed rule addresses appeal of the
Department of Member Regulation's decision to deny an application or a
written request for relief. Based in large part on FINRA Rules 9524 and
9525, FINRA has revised the proposed rule vis-[agrave]-vis the proposal
as published in the Notice so as to better align the rule with existing
provisions for broker-dealer members. As revised, the proposed rule
sets forth among other things procedures for a hearing when one is
requested, including notice of the hearing, the rights of parties at
the hearing, transmission of documents, extensions of time,
postponements and adjournments, and requirements as to the hearing
record. In addition, FINRA has made other conforming revisions. The
specific requirements of the proposed rule as revised are set forth
below.

    [cir] Notice (Proposed Funding Portal Rule 900(b)(11)(A))

    Paragraph (b)(11)(A) of the proposed rule provides that a funding
portal member or sponsoring funding portal member may file a written
notice of appeal within 14 days after service of a decision issued
under Funding Portal Rule 900(b). The rule provides that the notice of
appeal shall be filed with the Office of General Counsel, with a copy
to the Department of Member Regulation. The notice of appeal shall
state with specificity why the appellant believes the Department of
Member Regulation's decision is not consistent with the public interest
or should otherwise be set aside, and shall state whether a hearing is
requested. The notice of appeal shall be signed by the appellant.

[cir] Stay of Decision (Proposed Funding Portal Rule 900(b)(11)(B))

    Paragraph (b)(11)(B) of the proposed rule provides that an appeal
of the Department of Member Regulation's decision to deny an
Application or a written request for relief shall operate as a stay of
that decision while the appeal is pending.

[cir] Subcommittee (Proposed Funding Portal Rule 900(b)(11)(C))

    Paragraph (b)(11)(C) of the proposed rule provides that after an
appellant files a timely appeal, the National Adjudicatory Council or
the Statutory Disqualification Committee shall appoint two or more
members, who shall be current or former members of the National
Adjudicatory Council, Statutory Disqualification Committee, or former
Directors or Governors, to form a subcommittee. The rule provides that
the subcommittee shall conduct a hearing when one is requested, review
the appeal, and recommend a decision to the Statutory Disqualification
Committee.

[cir] Notice of Hearing and Rights of Parties at Hearing (Proposed
Funding Portal Rule 900(b)(11)(D))

    Paragraph (b)(11)(D) of the proposed rule provides that, if a
hearing is requested, the hearing shall be held no later than 90 days
after the filing of a notice of appeal unless the subcommittee
determines that there is good cause shown for extending the time
period. The rule provides that the appellant and the Department of
Member Regulation shall be notified via mail, email, facsimile, or
overnight courier of the location, time, and date of the hearing not
less than 14 business days before the hearing, unless the parties agree
to shorten the time period or where good cause has been shown for an
expedited proceeding under paragraph (b)(11)(F) of the rule as
discussed further below. The appellant and the Department of Member
Regulation shall be entitled to be heard in person at a hearing, to be
represented by an attorney, and to submit any relevant evidence.

[cir] Withdrawal or Abandonment (Proposed Funding Portal Rule
900(b)(11)(E))

    Paragraph (b)(11)(E) of the proposed rule provides that, if an
appellant abandons or withdraws the Application, the Department of
Member Regulation's decision shall constitute final action by FINRA.

[cir] Expedited Review (Proposed Funding Portal Rule 900(b)(11)(F))

    Paragraph 900(b)(11)(F) of the proposed rule provides that where
the failure to promptly review a decision to deny an Application would
unduly or unfairly harm the funding portal member or sponsoring funding
portal member, the subcommittee shall provide an expedited hearing upon
a showing of good cause. The subcommittee would have the authority to
set deadlines to prepare for the expedited hearing that would be
shorter than the dates for a non-expedited review under Funding Portal
Rule 900(b)(11)(G).

[cir] Transmission of Documents (Proposed Funding Portal Rule
900(b)(11)(G))

    Paragraph (b)(11)(G)(i) of the proposed rule provides that, within
14 days after the filing of a notice of appeal, the Department of
Member Regulation shall transmit to the Office of General Counsel, and
serve on the appellant to the extent that any such documents have not
been previously provided, copies of all documents that were considered
in connection with the Department of Member Regulation's decision to
deny the Application and an index to the documents.
    Paragraph (b)(11)(G)(ii) of the proposed rule provides that, not
less than 10 business days before the hearing, the Department of Member
Regulation and the appellant shall serve proposed exhibit and witness
lists on each other and the Office of General Counsel. The rule
provides that the exhibit and witness lists shall be served by email,
facsimile or overnight courier.
    Paragraph (b)(11)(G)(iii) of the proposed rule provides that, at
any time prior to the issuance of its recommendation, the subcommittee
may order the parties to supplement the record with any additional
information that the subcommittee deems necessary. The rule provides
that the subcommittee may also order the appellant and the Department
of Member Regulation to file legal briefs.

[cir] Extensions of Time, Postponements, and Adjournments (Proposed
Funding Portal Rule 900(b)(11)(H))

    Paragraph (b)(11)(H) of the proposed rule provides that the
subcommittee may shorten any time limits prescribed by these rules for
the filing of any papers after obtaining consent of all the parties,
and may postpone or adjourn any hearing. The rule provides that the
subcommittee may extend any time limits prescribed by these rules for
the filing of any papers.

[cir] Recordation of Hearing (Proposed Funding Portal Rule
900(b)(11)(I))

    Paragraph (b)(11)(I) of the proposed rule provides that the hearing
shall be recorded and a transcript prepared by a court reporter.

[cir] Record (Proposed Funding Portal Rule 900(b)(11)(J))

    Paragraph (b)(11)(J) of the proposed rule provides that the record
shall consist of:
    [rtarr8] the decision issued under Funding Portal Rule 900(b); \61\
---------------------------------------------------------------------------

    \61\ See proposed Funding Portal Rule 900(b)(11)(J)(i) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] all documents relied upon in issuing the decision issued
under Funding Portal Rule 900(b); \62\
---------------------------------------------------------------------------

    \62\ See proposed Funding Portal Rule 900(b)(11)(J)(ii) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] the notice of appeal; \63\
---------------------------------------------------------------------------

    \63\ See proposed Funding Portal Rule 900(b)(11)(J)(iii) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] any other submissions by the appellant and the Department
of Member Regulation; \64\
---------------------------------------------------------------------------

    \64\ See proposed Funding Portal Rule 900(b)(11)(J)(iv) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] any evidence considered at the hearing; \65\ and
---------------------------------------------------------------------------

    \65\ See proposed Funding Portal Rule 900(b)(11)(J)(v) in
Exhibit 5.
---------------------------------------------------------------------------

    [rtarr8] the transcript of the hearing and any corrections
thereto.\66\
---------------------------------------------------------------------------

    \66\ See proposed Funding Portal Rule 900(b)(11)(J)(vi) in
Exhibit 5.

    [cir] Evidence Not Admitted (Proposed Funding Portal Rule
---------------------------------------------------------------------------
900(b)(11)(K))

    Paragraph (b)(11)(K) of the proposed rule provides that evidence
that is proffered but not admitted during the hearing shall not be part
of the record, but shall be retained by the Office of General Counsel,
as custodian of the record, until the date when FINRA's decision
becomes final or, if applicable, upon the conclusion of any review by
the SEC or the federal courts.

[cir] Recommendation (Proposed Funding Portal Rule 900(b)(11)(L))

    Paragraph (b)(11)(L) of the proposed rule provides that, on the
basis of the record, the subcommittee shall present a recommended
decision in writing on the request for relief to the Statutory
Disqualification Committee. After considering the record and
recommendation of the subcommittee, the Statutory Disqualification
Committee shall present its recommended decision in writing to the
National Adjudicatory Council.

[cir] Decision (Proposed Funding Portal Rule 900(b)(11)(M))

    Paragraph (b)(11)(M) of the proposed rule provides that, after
considering all the matters presented in the request for relief, the
Statutory Disqualification Committee's recommendation, the public
interest and the protection of investors, the National Adjudicatory
Council may affirm, modify, or reverse in writing the Department of
Member Regulation's decision. The rule provides that the National
Adjudicatory Council shall provide its proposed decision to the FINRA
Board. If the FINRA Board does not call the decision for review, the
decision shall be served pursuant to Funding Portal Rule
900(b)(3)(A)(iv) and shall constitute final action of FINRA. A decision
to affirm the Department of Member Regulation's decision shall be
effective immediately. A decision to approve the Application shall be
effective after the SEC issues an order or acknowledgement letter, as
the case may be.

 Discretionary Review by the FINRA Board (Proposed Funding
Portal Rule 900(b)(12))

[cir] Call for Review by the FINRA Board (Proposed Funding Portal Rule
900(b)(12)(A))

    Paragraph (b)(12)(A) of the proposed rule provides that a Governor
may call a proposed National Adjudicatory Council decision regarding an
eligibility proceeding for review by the FINRA Board if the call for
review is made within the period prescribed in paragraph (b)(12)(B) of
the rule, as discussed below.

[cir] 15 Day Period; Waiver (Proposed Funding Portal Rule
900(b)(12)(B))

    Paragraph (b)(12)(B) of the proposed rule provides that a Governor
shall make his or her call for review not later than the next meeting
of the FINRA Board that is at least 15 days after the date on which the
FINRA Board receives the proposed written decision of the National
Adjudicatory Council. The rule provides that by a unanimous vote of the
FINRA Board, the FINRA Board may shorten the period to less than 15
days. By an affirmative vote of the majority of the FINRA Board then in
office, the FINRA Board may, during the 15 day period, vote to extend
the period to more than 15 days.

[cir] Review at Next Meeting (Proposed Funding Portal Rule
900(b)(12)(C))

    Paragraph (b)(12)(C) of the proposed rule provides that if a
Governor calls an eligibility proceeding for review within the period
prescribed in paragraph (b)(12)(B) of the rule, the FINRA Board shall
review the eligibility proceeding not later than the next meeting of
the FINRA Board. The FINRA Board may order the filing of briefs in
connection with its review proceedings pursuant to this Rule.

[cir] Decision of FINRA Board, Including Remand (Proposed Funding
Portal Rule 900(b)(12)(D))

    Paragraph (b)(12)(D) of the rule provides that, after review, the
FINRA Board may affirm, modify, or reverse the proposed written
decision of the National Adjudicatory Council. Alternatively, the FINRA
Board may remand the eligibility proceeding with instructions.

[cir] Issuance of Decision (Proposed Funding Portal Rule 900(b)(12)(E))

    Paragraph (b)(12)(E) of the proposed rule provides that the FINRA
Board

shall issue and serve its written decision on the disqualified funding
portal member, sponsoring funding portal member, or disqualified
person, and the Department of Member Regulation pursuant to FINRA Rules
9132 and 9134, as adopted pursuant to proposed Funding Portal Rule
900(a). The rule provides that the decision shall constitute the final
action of FINRA, unless the FINRA Board remands the proceeding. A
decision to deny re-entry or continued association shall be effective
immediately. The rule provides that a decision to approve shall be
effective after the SEC issues an acknowledgment letter or, in cases
involving SEC-ordered sanctions, an order.

 Application to SEC for Review (Proposed Funding Portal Rule
900(b)(13))

    Proposed Funding Portal Rule 900(b)(13) provides that the right to
have any action taken pursuant to this Rule Series reviewed by the SEC
is governed by Section 19 of the Exchange Act. The rule provides that
filing of an application for review shall not stay the effectiveness of
final action by FINRA, unless the SEC otherwise orders.
G. Arbitration and Mediation (Proposed Funding Portal Rule 1200)
    Proposed Funding Portal Rule 1200(a) is designed to provide that
funding portal members will be subject to the FINRA Rule 12000 Series
(Code of Arbitration Procedure for Customer Disputes), FINRA Rule 13000
Series (Code of Arbitration Procedure for Industry Disputes) and FINRA
Rule 14000 Series (Code of Mediation Procedure), unless the context
requires otherwise. The rule provides that:
     the term ``member'' as used in the FINRA Rule 12000
Series, FINRA Rule 13000 Series and FINRA Rule 14000 Series shall mean
``funding portal member'' as defined pursuant to Funding Portal Rule
100(b);
     the term ``associated person'' as used in the FINRA Rule
12000 Series, FINRA Rule 13000 Series and FINRA Rule 14000 Series shall
mean ``associated person of a funding portal member'' or ``person
associated with a funding portal member'' as defined pursuant to
Funding Portal Rule 100(b);
     the terms ``rules'' and ``FINRA rules'' as used in the
FINRA Rule 12000, FINRA Rule 13000 Series and FINRA Rule 14000 Series
shall include the Funding Portal Rules; and
     the term ``customer'' as used in the FINRA Rule 12000,
FINRA Rule 13000 Series and FINRA Rule 14000 Series shall include
investors as such term is used throughout the Funding Portal Rules.
    Paragraph (b) of the rule addresses predispute arbitration
agreements for investor accounts. The rule is a streamlined version of
current FINRA Rule 2268 (Requirements When Using Predispute Arbitration
Agreements for Customer Agreements). Paragraph (b)(1) of the rule
provides that any predispute arbitration clause must be highlighted and
must be immediately preceded by the following language in outline form:
    ``This agreement contains a predispute arbitration clause. By
signing an arbitration agreement the parties agree as follows:
    (A) All parties to this agreement are giving up the right to sue
each other in court, including the right to a trial by jury, except as
provided by the rules of the arbitration forum in which a claim is
filed.
    (B) Arbitration awards are generally final and binding; a party's
ability to have a court reverse or modify an arbitration award is very
limited.
    (C) The ability of the parties to obtain documents, witness
statements and other discovery is generally more limited in arbitration
than in court proceedings.
    (D) The arbitrators do not have to explain the reason(s) for their
award unless, in an eligible case, a joint request for an explained
decision has been submitted by all parties to the panel at least 20
days prior to the first scheduled hearing date.
    (E) The panel of arbitrators may include a minority of arbitrators
who were or are affiliated with the securities industry.
    (F) The rules of some arbitration forums may impose time limits for
bringing a claim in arbitration. In some cases, a claim that is
ineligible for arbitration may be brought in court.
    (G) The rules of the arbitration forum in which the claim is filed,
and any amendments thereto, shall be incorporated into this
agreement.''
    Paragraph (b)(2)(A) of the rule provides that, in any agreement
containing a predispute arbitration agreement, there must be a
highlighted statement immediately preceding any signature line or other
place for indicating agreement that states that the agreement contains
a predispute arbitration clause. The statement must also indicate at
what page and paragraph the arbitration clause is located. Paragraph
(b)(2)(B) provides that, within 30 days of signing, a copy of the
agreement containing any such clause must be given to the investor and
the funding portal member must retain proof of delivery or of the
investor's acknowledgement of receipt.
    Paragraph (b)(3)(A) of the rule provides that, within ten business
days of receipt of the investor's request, a funding portal member must
provide an investor with a copy of any predispute arbitration clause or
investor agreement executed between the investor and the funding portal
member. Paragraph (b)(3)(B) provides that, upon request by an investor,
a funding portal member must provide the investor with the names of,
and information on how to contact or obtain the rules of, all
arbitration forums in which a claim may be filed under the agreement.
    Paragraph (b)(4) of the rule provides that no predispute
arbitration agreement shall include any condition that:
     Limits or contradicts the rules of any self-regulatory
organization;
     limits the ability of a party to file any claim in
arbitration;
     limits the ability of a party to file any claim in court
permitted to be filed in court under the rules of the forums in which a
claim may be filed under the agreement;
     limits the ability of arbitrators to make any award.
    Paragraph (b)(5) of the rule provides that, if an investor files a
complaint in court against a funding portal member that contains claims
that are subject to arbitration pursuant to a predispute arbitration
agreement between the funding portal member and the investor, the
funding portal member may seek to compel arbitration of the claims that
are subject to arbitration. If the funding portal member seeks to
compel arbitration of such claims, the funding portal member must agree
to arbitrate all of the claims contained in the complaint if the
investor so requests.
    Paragraph (b)(6) of the rule provides that all agreements must
include a statement that ``No person shall bring a putative or
certified class action to arbitration, nor seek to enforce any pre-
dispute arbitration agreement against any person who has initiated in
court a putative class action; or who is a member of a putative class
who has not opted out of the class with respect to any claims
encompassed by the putative class action until: (i) The class
certification is denied; or (ii) the class is decertified; or (iii) the
investor is excluded from the class by the court. Such forbearance to
enforce an agreement to arbitrate shall not constitute a waiver of any
rights under this agreement except to the extent stated herein.''

H. Notification to FINRA in Connection With the JOBS Act (Proposed
Funding Portal Rule 4518)

    As discussed earlier, under Section 302 of the JOBS Act, an
intermediary that engages in transactions involving the offer or sale
of securities pursuant to the crowdfunding exemption is required to
register with the SEC as a funding portal or broker and to register
with an applicable self-regulatory organization.\67\ As such, the
statute contemplates activity by registered brokers pursuant to Title
III of the JOBS Act, subject to specified conditions. In anticipation
that registered broker members of FINRA may intend to act as
intermediaries for transactions in connection with the crowdfunding
exemption, FINRA is proposing to adopt, as part of the FINRA rulebook,
new FINRA Rule 4518. The rule would apply to registered broker members.
The rule provides that a FINRA member shall notify FINRA, in a manner
prescribed by FINRA:
---------------------------------------------------------------------------

    \67\ See Sections 4A(a)(1) and (2) of the Securities Act (15
U.S.C. 77d-1(a)(1) and (2)).
---------------------------------------------------------------------------

     prior to engaging, for the first time, in a transaction
involving the offer or sale of securities in reliance on Section
4(a)(6) of the Securities Act; or
     within 30 days of directly or indirectly controlling, or
being controlled by or under common control with, a funding portal as
defined pursuant to Rule 300(c)(2) of SEC Regulation Crowdfunding.
    Proposed FINRA Rule 4518 is an addition to the proposal vis-
[agrave]-vis the proposed rule change as published in the Notice. FINRA
believes the requirement is a useful complement to the Funding Portal
Rules, given that it would enable FINRA to keep accurate track as to
which of its registered broker members, if any, are engaging in
activity in connection with Title III of the JOBS Act and thereby
assist FINRA in carrying out its regulatory responsibilities.
    If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice to be published no later than 90 days following Commission
approval. The effective date will be no later than 365 days following
Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\68\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The Act, as amended by the JOBS Act, defines the
permissible business activities of funding portals and requires that
funding portals must become members of a national securities
association. FINRA is the only registered national securities
association. The Act requires that FINRA examine for and enforce
against registered funding portals rules written specifically for
registered funding portals.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    FINRA believes that the proposal is consistent with the Act because
FINRA has written the proposed rules specifically for funding portals,
seeking to streamline the rules or otherwise appropriately modify them
to reflect the limited nature of funding portal business, as set forth
in the Act.
    The proposed rules address general standards applicable to funding
portals (Funding Portal Rule 100), the member application process for
funding portals (Funding Portal Rule 110(a)), and business conduct,
including standards of commercial honor and principles of trade
(Funding Portal Rule 200(a)), prohibitions against the use of
manipulative, deceptive or other fraudulent devices (Funding Portal
Rule 200(b)) and communications with the public (Funding Portal Rule
200(c)). The proposed rules further address supervisory systems
(Funding Portal Rule 300(a)), designation of an executive
representative (Funding Portal Rule 300(b)), reporting requirements
(Funding Portal Rule 300(c)), contact information requirements (Funding
Portal Rule (300(d)), submission of revenue statements to FINRA
(Funding Portal Rule 300(e) and requirements as to making and keeping
current records listing associated persons of the funding portal
(Funding Portal Rule 300(f)). In addition, the rules address the
application of FINRA's investigations and sanctions procedures to
funding portals (Funding Portal Rule 800(a)), public disclosure by
FINRA of information on funding portals (Funding Portal Rule 800(b)),
the application of FINRA's Code of Procedure to funding portals
(Funding Portal Rule 900(a)), eligibility proceedings in connection
with statutory disqualifications under the Act (Funding Portal Rule
900(b)), the application of FINRA's Arbitration and Mediation
Procedures to funding portals (Funding Portal Rule 1200(a) and rules
governing predispute arbitration agreements for investor accounts
(Funding Portal Rule 1200(b)).
    Consistent with the Act, the proposed rules prohibit fraudulent and
manipulative acts and practices and require that funding portal members
observe just and equitable principles of trade, thereby conducing to
the protection of investors. The proposal is consistent with the public
interest because the streamlined requirements as set forth in the
proposal, considered in combination with and in view of the
restrictions imposed on funding portal business by the Act, are
consistent with the Congressional intent of the JOBS Act, which sought
to minimize regulatory burdens on funding portals and thereby enable
them to play a role in increasing American job creation and economic
growth through the new capital raising methods of crowdfunding.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Act, as amended by the JOBS
Act, limits the permissible business activities of funding portals and
requires that funding portals must become members of a national
securities association. FINRA is the only registered national
securities association. The Act requires that FINRA examine for and
enforce against registered funding portals rules written specifically
for funding portals. As such, FINRA has designed the proposed rules to
streamline or otherwise appropriately modify existing FINRA rules to
reflect the limited scope of business activity permitted to funding
portals under the JOBS Act.
    FINRA believes that the streamlined approach should minimize the
potential costs and burdens on prospective funding portal members at
this early stage of development of funding portal business, thereby
helping to effectuate the Congressional intent to enable funding
portals to play a role in increasing American job creation and economic
growth through the new capital raising methods of crowdfunding.
Further, FINRA believes the streamlined approach is appropriate given
that regulatory experience with funding portals is at an early stage.
Following are several requirements that FINRA has streamlined for
funding portals vis-[agrave]-vis requirements that currently apply to
broker-dealers:
     The proposed membership application process (MAP) under
Funding Portal Rule 110(a) shortens the time frame for the Department
of Member Regulation to provide a

decision on a funding portal MAP to 60 days, versus 180 days under the
broker-dealer MAP rules. FINRA believes that this shortened time frame
is appropriate both in view of the limited nature of funding portal
business and in the interest of enabling funding portals to begin their
operations expeditiously, thereby supporting a basic purpose of the
JOBS Act.
     The proposed MAP streamlines and consolidates, from 14 to
five, the NASD Rule 1010 Series standards for granting or denying a
funding portal's membership application. FINRA believes that this is
consistent with the rationale underlying the shortened time frame for
the funding portal MAP, as discussed above, which should ameliorate
potential burdens on funding portal members.
     The proposed Form FP-NMA and Form FP-CMA require
significantly less information than the broker-dealer counterpart
forms, which FINRA believes is consistent with the limited scope of
business to be conducted by funding portals. FINRA believes that,
similar to the shortened MAP time frame and streamlined standards for
granting or denying an application, this again ameliorates potential
burdens on funding portal members.
     The proposal imposes no broker-dealer equivalent licensing
or examination requirement on associated persons of funding portal
members. FINRA believes that imposing examination and licensing
requirements on funding portal members at this stage is not necessary
in light of the limited activities of funding portals. However, as
FINRA gains experience under the proposed rules, FINRA will consider
whether additional rulemaking with respect to examination and licensing
requirements is merited.
     The proposal as set forth in Regulatory Notice 13-34 would
have required funding portal members to maintain fidelity bond
coverage. As discussed earlier, FINRA is not proposing at this time a
fidelity bond requirement. FINRA will monitor developments in this area
and determine whether a subsequent rulemaking is merited.
     FINRA is not proposing at this time net capital or similar
financial responsibility requirements for funding portals. FINRA
believes that this approach is appropriate at this time in view of the
limited nature of funding portal business, in particular the JOBS Act
prohibition against funding portals holding, managing, possessing, or
otherwise handling investor funds and securities. Again, however, FINRA
will monitor developments in this area and determine whether a
subsequent rulemaking is merited.
    FINRA has undertaken an economic impact assessment, as set forth
below, to further analyze the need for the proposed rules, the
regulatory objective of the rulemaking, the economic baseline of
analysis, and the economic impacts.

A. Need for the Rules

    Section 3(h)(2) of the Exchange Act,\69\ as amended by the JOBS
Act, requires that FINRA only examine for and enforce against
registered funding portals rules that FINRA has written specifically
for registered funding portals.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78c(h)(2).
---------------------------------------------------------------------------

    Under Title III of the JOBS Act, a funding portal is a new type of
intermediary the business activities of which are of limited scope, as