New Rules Proposed: Funding Portals

By: Jessica Offer, CPA, Manager – WithumSmith+Brown, PC

After almost two years since FINRA’s proposed Funding Portal rules were first released amendments have arrived!  The amendments take into consideration the seven comment letters that were received back when the proposal was first issued and expressed the following concerns:

  • Initial cost too expensive and burdensome
  • Portals aren’t holding customer funds therefore should not require an anti-money laundering (“AML”) program
  • Clarification on definition of an “associated person”
  • Support for a supervisory system including written procedures
  • Postpone requirement of fidelity bond until application is approved or eliminate requirement all together since portals do not hold customer funds
  • Required use of the Central Registration Depository (CRD)
  • Licensing requirements for associated persons

As a result, the following changes were included in the revised proposal:

  • No minimum net capital requirements
  • No fidelity bond requirements
  • No required AML program

Almost simultaneously FINRA issued a fee schedule for funding portals (Section 15 of Schedule A of the FINRA By-Laws, SR-FINRA-2015-041):

  • New membership application:         $2,700
  • Change in ownership or control:      $500
  • Annual gross income assessment:  $1,200 up to $1,000,000                                                                                                                                                          *Seven tiered schedule in excess of $1,000,000                                                                                                            *In accordance with Schedule A Section 1(c).

Note: Annual fee for a funding portal which is not a member for a full year (either due to entry or exit) would be prorated.

For additional information relating to FINRA’s governance over funding portals visit http://www.finra.org/industry/issues/funding-portals.

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Categories: Uncategorized

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