Jan 10 The Financial Industry Regulatory
Authority (FINRA) has asked crowdfunding websites to voluntarily
register with it as a first step towards regulating a
fast-growing industry that helps small businesses secure
FINRA, Wall Street's industry-funded watchdog, said it was
working with the Securities and Exchange Commission (SEC) to
draft rules that would govern crowdfunding.
In the meantime, FINRA has asked the websites to register
with it and provide details that would help it draft the rules.
Crowdfunding is a capital-raising strategy in which
investors buy small stakes in ventures through various websites.
Interest in crowdfunding exploded after President Barack
Obama signed the Jumpstart our Business Startups, or JOBS, Act
The law, aimed at boosting small business growth, legalized
crowdfunding as a way for businesses to solicit private
investors with the promise of potential returns.
But the SEC needs to adopt rules before small businesses can
offer and sell securities to investors through the crowdfunding
process, and the JOBS Act directs the SEC to adopt these rules
by roughly April 2013.
While crowdfunding portals could set up their own
self-regulatory organization, it is more likely that FINRA will
serve in the role, the regulator's Chief Executive Richard
Ketchum told Reuters earlier this week.
"We will be very focused on this marketplace," Ketchum said,
adding that FINRA will regulate crowdfunding portals as a
FINRA, which oversees 4,290 brokerage firms and about
630,000 brokers, expects brokerages to become active in the
crowdfunding business once the new rules are in place, Ketchum
said after FINRA released statistics about its 2012 enforcement
efforts on Tuesday.
One of the largest and most famous crowdfunding websites,
Kickstarter, claims to have received almost $320 million in
pledges for over 18,000 innovative projects in 2012 alone.
Thursday's announcement asks crowdfunding portals to file an
"Interim Form" with the watchdog with details on their
ownership, funding, management and business model.
FINRA added that the websites would have to re-register once
the final rules are agreed upon.