Crowdfunding Portals or Broker Dealers: Department of Treasury Amends Definition of Broker Dealers to Accommodate Title III Platforms

US Department of TreasuryThe US Department of Treasury, via the Financial Crimes Enforcement Network (FinCEN), has published a proposed rule change that impacts the definition of a funding portal under Title III of the JOBS Act. This new rule-making would amend some definitions to include funding portals. Specifically, crowdfunding portals will be required to comply with the Bank Secrecy Act that is intended to prevent money laundering and other financial crimes or terrorist financing. One wonders if all crowdfunding platforms will not inevitably become Broker Dealers.

Crowdfund Insider Senior Contributor, Anthony Zeoli, commented on the proposed rule change;Anthony Zeoli at SEC

“With Title III crowdfunding kicking off in May, I can appreciate efforts like these by agencies looking to clarify what Title III platforms will actually be responsible for. That being said, under the final Title III rules, funding portals are not required to be broker-dealers and cannot handle money so I am not sure why the AML/KYC obligations should fall on their plate. In my opinion, making funding portals synonymous with the definition of “broker-dealers” under the Bank Secrecy Act only serves to further blur the lines between the obligations of registered funding portals and those of registered broker-dealers.”

Treasury is not alone in preparing for Reg CF this coming May. The SEC Chair stated that she expects funding portals will be the first line of defense when it comes to investor protection – acting as explicit “gatekeepers”. The SEC “will hold them to that responsibility”, thus warning platforms that are not diligent in their vetting process.

The Treasury document is embedded below.


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