Dodd-Frank has proven to be a horrible act of legislation. A reactionary swipe directed towards the financial services industry following the calamity known as the Great Recession, many portions of the law have not yet been fully enacted. The new regulations are simply too convoluted and complex. Few people really understand it. Sure there remain defenders but these voices have been dimmed as more thoughtful comments have focused on the burdens placed upon smaller banks and the businesses that depend on them. Jeb Hensarling, the author of the bill and Chair of the powerful Financial Services Committee, released a statement on its passage. Hensarling, as always, did not mince his words;
“Every promise of Dodd-Frank has been broken. Fortunately there is a better, smarter way. It’s called the Financial CHOICE Act. It stands for economic growth for all, but bank bailouts for none. We will end bank bailouts once and for all. We will replace bailouts with bankruptcy. We will replace economic stagnation with a growing, healthy economy. We will make sure there is needed regulatory relief for our small banks and credit unions, because it’s our small banks and credit unions that lend to our small businesses that are the jobs engine of our economy and make sure the American dream is not a pipe dream.”
But buried within the current version of the bill are additional changes that impact access to capital including Title III of the JOBS commonly called Reg CF. Crowdfund Insider reached out to Senior Contributor Sam Guzik for an explanation as to what the language delivers for small business;
Sandwiched into the nearly 600 page Financial Choice Act is a chapter which is a full “repeal and replace” of the current JOBS Act Title III, said Guzik. He itemized the changes:
- gone are limits on how much a company can raise;
- gone are requirements for financial statements or, for that matter, any other type of disclosure;
- gone are requirements to file annual reports after completing a raise;
- gone is the risk of inadvertently becoming a fully reporting company, as purchasers of these securities are not counted towards the 500 non-accredited shareholder limit;
- gone is the requirement to conduct the offering on an SEC and FINRA registered portal;
- gone are restrictions on “off portal” solicitation and advertising; and
- gone are the restrictions on how much an investor can invest.
Guzik said there were several caveats to be aware of;
“First, the new crowdfunding law must be implemented through SEC rulemaking. The SEC will retain broad discretion to provide investor protection measures, so long as these do not conflict with the express terms of the statute. One could expect rules which would include, at the least, a basic disclosure obligation by crowdfunding companies, and investment limits for investors. And second, this bill must pass the Senate. This is likely a heavy lift – at the heart of the Financial Choice Act is a massive overhaul of Dodd-Frank, which will ensure a sharp divide on the bill down party lines.”
So finally a much needed fix for Reg CF is on the table. But the Senate may block progress, once again. But Guzik is optimistic that, one way or another, a much needed regulatory update for Reg CF will be forthcoming;
“… the good news is (1) there is surely a Plan B: Introduce a new standalone bill addressing only crowdfunding, and (2) though any new crowdfunding legislation will face strong opposition from state regulators (NASAA) and consumer protection groups, the odds are greatly increased that we can expect to see an improved version of the current JOBS Act provision by the end of this year.”
We will keep you posted.