FINRA takes step toward writing crowdfunding rules

Radhika Sivadi

2 min read ·


NEW YORK (AP) — A regulator for the securities industry has taken a step toward writing rules that will govern Internet sites for crowdfunding for small businesses.

The Financial Regulatory Authority, or FINRA, said Thursday that it created a voluntary information form for anyone planning to start a crowdfunding website. FINRA, a nongovernmental agency, plans to use the information to help develop rules on crowdfunding that will be published by the Securities and Exchange Commission.

Crowdfunding is a method of raising money from a large number of people. A law enacted last year, the Jumpstart Our Business Startups Act, or JOBS Act, allows small businesses to solicit money from investors by crowdfunding on the Internet. But websites can't start up until the SEC has issued its rules.

The forms created by FINRA ask prospective operators for information about their ownership, funding and management and business plans.

The SEC was scheduled to have its rules written by Dec. 31. It's not known when they might be published. The resignations of SEC Chairman Mary Schapiro and Robert Cook, director of the agency's trading and markets division, are expected to delay implementation of the rules, and in turn, the start of crowdfunding sites.

Under the JOBS Act, companies can raise up to $1 million a year from individual investors. The websites that will match investors with small businesses will have to register with the SEC. And companies seeking funding will need to provide financial records, business plans and other information to potential investors.

Crowdfunding has been used for years by charities to raise money. It is also used on websites like by individuals and companies to raise money to fund projects including product development. However, anyone who gives money to these projects is not considered an investor, and so these websites are not covered by the JOBS Act.

Radhika Sivadi