Both Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) managed to meet the January 29, 2016 deadline by finalizing Title III rules of the Jumpstart Our Business Startups (JOBS) Act. Under these rules, almost everyone will be allowed to participate in online equity investing. Many industry participants have said that the new rules are more tightly defined than Title IV and Regulation A+.
Opening up of retail crowdfunding investment opportunities to accredited, non-accredited, experienced and first time investors is expected to bring mixed reactions in the entire alternative finance industry. Entrepreneurs will be able to attain their financing needs faster because of the wider network. In addition, investors will be able to diversify their portfolios by investing in different projects. This will also lead to an increase in demand for financial services as both investors and entrepreneurs will want to complete their transactions more easily, quickly and affordably.
The doors have now been opened and prospective crowdfunding portals can start filing their applications with the SEC. Once their applications have been approved, the portals can start setting up the necessary infrastructure to start applying the rules once they come to life on May 16, 2016.
According to FINRA’s proposed rules, existing members need not make any new applications. They only have to change earlier filings by stating the new business line they will be operating. This means that existing broker-dealers can only wait to start operations once the new rules become effective. Nevertheless, some broker-dealers are planning to establish a subsidiary so as to register as financing portals. This will enable them to separate liabilities and operations of their different lines of business.
The only amendment that has been made to FINRA’s proposed regulations is that all individuals and groups registered on Schedule A during filing are required to provide information and testimony. They must also allow inspection and copying of records and books. Even though the amendment is currently effective, FINRA and SEC are still receiving opinions from the public.
There is a lot of anxiety on the number of financing portals that are going to file applications for these new rules. Some crowdfunding platforms, such as StartEngine, have announced they have started the filing process. This is also expected to influence future investment decisions for several venture capitalists, angel investors, fintech companies and retail investors. All that people can do now is to wait and hope that the new rules will bring more benefits. Undoubtedly, all these developments will significantly affect both online investing as well as the alternative finance industry.